Correlation Between Cisadane Sawit and FAP Agri

Can any of the company-specific risk be diversified away by investing in both Cisadane Sawit and FAP Agri 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 Cisadane Sawit and FAP Agri into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cisadane Sawit Raya and FAP Agri Tbk, you can compare the effects of market volatilities on Cisadane Sawit and FAP Agri 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 Cisadane Sawit with a short position of FAP Agri. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cisadane Sawit and FAP Agri.

Diversification Opportunities for Cisadane Sawit and FAP Agri

0.7

Correlation Coefficient

Cisadane Sawit  FAP Agri

Poor diversification

The 3 months correlation between Cisadane and FAP is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Cisadane Sawit Raya and FAP Agri Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAP Agri Tbk and Cisadane Sawit 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 Cisadane Sawit Raya are associated (or correlated) with FAP Agri. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FAP Agri Tbk has no effect on the direction of Cisadane Sawit i.e., Cisadane Sawit and FAP Agri go up and down completely randomly.

Pair Corralation between Cisadane Sawit and FAP Agri

Assuming the 90 days trading horizon Cisadane Sawit Raya is expected to generate 6.63 times more return on investment than FAP Agri. However, Cisadane Sawit is 6.63 times more volatile than FAP Agri Tbk. It trades about 0.12 of its potential returns per unit of risk. FAP Agri Tbk is currently generating about 0.05 per unit of risk. If you would invest  64,500  in Cisadane Sawit Raya on September 12, 2024 and sell it today you would earn a total of  8,500  from holding Cisadane Sawit Raya or generate 13.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Cisadane Sawit Raya  vs.  FAP Agri Tbk

Cisadane Sawit Raya

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cisadane Sawit Raya are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Cisadane Sawit disclosed solid returns over the last few months and may actually be approaching a breakup point.

FAP Agri Tbk

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FAP Agri Tbk are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, FAP Agri is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Cisadane Sawit and FAP Agri

The main advantage of trading using opposite Cisadane Sawit and FAP Agri positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cisadane Sawit position performs unexpectedly, FAP Agri 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 FAP Agri will offset losses from the drop in FAP Agri's long position.

The idea behind Cisadane Sawit Raya and FAP Agri 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.