Correlation Between Elang Mahkota and Bank Net

Can any of the company-specific risk be diversified away by investing in both Elang Mahkota and Bank Net 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 Elang Mahkota and Bank Net into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Elang Mahkota Teknologi and Bank Net Indonesia, you can compare the effects of market volatilities on Elang Mahkota and Bank Net 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 Elang Mahkota with a short position of Bank Net. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elang Mahkota and Bank Net.

Diversification Opportunities for Elang Mahkota and Bank Net

0.15

Correlation Coefficient

Elang Mahkota  Bank Net

Average diversification

The 3 months correlation between Elang and Bank is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Elang Mahkota Teknologi and Bank Net Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Net Indonesia and Elang Mahkota 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 Elang Mahkota Teknologi are associated (or correlated) with Bank Net. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Net Indonesia has no effect on the direction of Elang Mahkota i.e., Elang Mahkota and Bank Net go up and down completely randomly.

Pair Corralation between Elang Mahkota and Bank Net

Assuming the 90 days trading horizon Elang Mahkota Teknologi is expected to generate 2.58 times more return on investment than Bank Net. However, Elang Mahkota is 2.58 times more volatile than Bank Net Indonesia. It trades about 0.06 of its potential returns per unit of risk. Bank Net Indonesia is currently generating about -0.02 per unit of risk. If you would invest  49,200  in Elang Mahkota Teknologi on December 29, 2024 and sell it today you would earn a total of  5,300  from holding Elang Mahkota Teknologi or generate 10.77% return on investment over 90 days.

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

Elang Mahkota Teknologi  vs.  Bank Net Indonesia

Elang Mahkota Teknologi

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Elang Mahkota Teknologi are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Elang Mahkota disclosed solid returns over the last few months and may actually be approaching a breakup point.

Bank Net Indonesia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank Net Indonesia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Bank Net 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 Elang Mahkota and Bank Net

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

The idea behind Elang Mahkota Teknologi and Bank Net Indonesia 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.

Check out your portfolio center.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.