Correlation Between Clipan Finance and Buana Finance

Can any of the company-specific risk be diversified away by investing in both Clipan Finance and Buana Finance at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Clipan Finance and Buana Finance into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Clipan Finance Indonesia and Buana Finance Tbk, you can compare the effects of market volatilities on Clipan Finance and Buana Finance and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Clipan Finance with a short position of Buana Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Clipan Finance and Buana Finance.

Diversification Opportunities for Clipan Finance and Buana Finance

0.73

Correlation Coefficient

Clipan Finance  Buana Finance

Poor diversification

The 3 months correlation between Clipan and Buana is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Clipan Finance Indonesia and Buana Finance Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Buana Finance Tbk and Clipan Finance is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Clipan Finance Indonesia are associated (or correlated) with Buana Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Buana Finance Tbk has no effect on the direction of Clipan Finance i.e., Clipan Finance and Buana Finance go up and down completely randomly.

Pair Corralation between Clipan Finance and Buana Finance

Assuming the 90 days trading horizon Clipan Finance Indonesia is expected to generate 0.73 times more return on investment than Buana Finance. However, Clipan Finance Indonesia is 1.36 times less risky than Buana Finance. It trades about -0.01 of its potential returns per unit of risk. Buana Finance Tbk is currently generating about -0.04 per unit of risk. If you would invest  30,800  in Clipan Finance Indonesia on December 30, 2024 and sell it today you would lose (600.00) from holding Clipan Finance Indonesia or give up 1.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Clipan Finance Indonesia  vs.  Buana Finance Tbk

Clipan Finance Indonesia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Clipan Finance Indonesia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Clipan Finance is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Buana Finance Tbk

Risk-Adjusted Performance

Very Weak

Over the last 90 days Buana Finance Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Clipan Finance and Buana Finance

The main advantage of trading using opposite Clipan Finance and Buana Finance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Clipan Finance position performs unexpectedly, Buana Finance can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Buana Finance will offset losses from the drop in Buana Finance's long position.

The idea behind Clipan Finance Indonesia and Buana Finance Tbk pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.