Correlation Between Elang Mahkota and DCI Indonesia

Can any of the company-specific risk be diversified away by investing in both Elang Mahkota and DCI Indonesia 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 DCI Indonesia 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 DCI Indonesia Tbk, you can compare the effects of market volatilities on Elang Mahkota and DCI Indonesia 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 DCI Indonesia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elang Mahkota and DCI Indonesia.

Diversification Opportunities for Elang Mahkota and DCI Indonesia

-0.24

Correlation Coefficient

Elang Mahkota  DCI Indonesia

Very good diversification

The 3 months correlation between Elang and DCI is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Elang Mahkota Teknologi and DCI Indonesia Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DCI Indonesia Tbk 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 DCI Indonesia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DCI Indonesia Tbk has no effect on the direction of Elang Mahkota i.e., Elang Mahkota and DCI Indonesia go up and down completely randomly.

Pair Corralation between Elang Mahkota and DCI Indonesia

Assuming the 90 days trading horizon Elang Mahkota is expected to generate 11.13 times less return on investment than DCI Indonesia. But when comparing it to its historical volatility, Elang Mahkota Teknologi is 2.41 times less risky than DCI Indonesia. It trades about 0.06 of its potential returns per unit of risk. DCI Indonesia Tbk is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  4,210,000  in DCI Indonesia Tbk on December 29, 2024 and sell it today you would earn a total of  12,115,000  from holding DCI Indonesia Tbk or generate 287.77% return on investment over 90 days.

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

Elang Mahkota Teknologi  vs.  DCI Indonesia Tbk

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.

DCI Indonesia Tbk

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in DCI Indonesia Tbk are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, DCI Indonesia disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Elang Mahkota and DCI Indonesia

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

The idea behind Elang Mahkota Teknologi and DCI Indonesia 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.