Correlation Between Energi Mega and Bakrie Sumatera

Can any of the company-specific risk be diversified away by investing in both Energi Mega and Bakrie Sumatera 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 Energi Mega and Bakrie Sumatera into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Energi Mega Persada and Bakrie Sumatera Plantations, you can compare the effects of market volatilities on Energi Mega and Bakrie Sumatera 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 Energi Mega with a short position of Bakrie Sumatera. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energi Mega and Bakrie Sumatera.

Diversification Opportunities for Energi Mega and Bakrie Sumatera

0.77

Correlation Coefficient

Energi Mega  Bakrie Sumatera

Poor diversification

The 3 months correlation between Energi and Bakrie is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Energi Mega Persada and Bakrie Sumatera Plantations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bakrie Sumatera Plan and Energi Mega 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 Energi Mega Persada are associated (or correlated) with Bakrie Sumatera. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bakrie Sumatera Plan has no effect on the direction of Energi Mega i.e., Energi Mega and Bakrie Sumatera go up and down completely randomly.

Pair Corralation between Energi Mega and Bakrie Sumatera

Assuming the 90 days trading horizon Energi Mega is expected to generate 1.89 times less return on investment than Bakrie Sumatera. In addition to that, Energi Mega is 1.67 times more volatile than Bakrie Sumatera Plantations. It trades about 0.07 of its total potential returns per unit of risk. Bakrie Sumatera Plantations is currently generating about 0.24 per unit of volatility. If you would invest  8,200  in Bakrie Sumatera Plantations on September 4, 2024 and sell it today you would earn a total of  3,600  from holding Bakrie Sumatera Plantations or generate 43.9% return on investment over 90 days.

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

Energi Mega Persada  vs.  Bakrie Sumatera Plantations

Energi Mega Persada

Risk-Adjusted Performance

5 of 100

Modest

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

Bakrie Sumatera Plan

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bakrie Sumatera Plantations are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Bakrie Sumatera disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Energi Mega and Bakrie Sumatera

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

The idea behind Energi Mega Persada and Bakrie Sumatera Plantations 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.