Correlation Between Erajaya Swasembada and Modern Internasional

Can any of the company-specific risk be diversified away by investing in both Erajaya Swasembada and Modern Internasional 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 Erajaya Swasembada and Modern Internasional into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Erajaya Swasembada Tbk and Modern Internasional Tbk, you can compare the effects of market volatilities on Erajaya Swasembada and Modern Internasional 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 Erajaya Swasembada with a short position of Modern Internasional. Check out your portfolio center. Please also check ongoing floating volatility patterns of Erajaya Swasembada and Modern Internasional.

Diversification Opportunities for Erajaya Swasembada and Modern Internasional

0.47

Correlation Coefficient

Erajaya Swasembada  Modern Internasional

Very weak diversification

The 3 months correlation between Erajaya and Modern is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Erajaya Swasembada Tbk and Modern Internasional Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Modern Internasional Tbk and Erajaya Swasembada 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 Erajaya Swasembada Tbk are associated (or correlated) with Modern Internasional. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Modern Internasional Tbk has no effect on the direction of Erajaya Swasembada i.e., Erajaya Swasembada and Modern Internasional go up and down completely randomly.

Pair Corralation between Erajaya Swasembada and Modern Internasional

Assuming the 90 days trading horizon Erajaya Swasembada is expected to generate 5.36 times less return on investment than Modern Internasional. But when comparing it to its historical volatility, Erajaya Swasembada Tbk is 3.56 times less risky than Modern Internasional. It trades about 0.03 of its potential returns per unit of risk. Modern Internasional Tbk is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  600.00  in Modern Internasional Tbk on September 28, 2024 and sell it today you would earn a total of  100.00  from holding Modern Internasional Tbk or generate 16.67% return on investment over 90 days.

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

Erajaya Swasembada Tbk  vs.  Modern Internasional Tbk

Erajaya Swasembada Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Erajaya Swasembada 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.

Modern Internasional Tbk

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Modern Internasional Tbk are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Modern Internasional may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Erajaya Swasembada and Modern Internasional

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

The idea behind Erajaya Swasembada Tbk and Modern Internasional 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.