Correlation Between Erajaya Swasembada and Sona Topas

Can any of the company-specific risk be diversified away by investing in both Erajaya Swasembada and Sona Topas 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 Sona Topas 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 Sona Topas Tourism, you can compare the effects of market volatilities on Erajaya Swasembada and Sona Topas 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 Sona Topas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Erajaya Swasembada and Sona Topas.

Diversification Opportunities for Erajaya Swasembada and Sona Topas

-0.05

Correlation Coefficient

Erajaya Swasembada  Sona Topas

Good diversification

The 3 months correlation between Erajaya and Sona is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Erajaya Swasembada Tbk and Sona Topas Tourism in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sona Topas Tourism 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 Sona Topas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sona Topas Tourism has no effect on the direction of Erajaya Swasembada i.e., Erajaya Swasembada and Sona Topas go up and down completely randomly.

Pair Corralation between Erajaya Swasembada and Sona Topas

Assuming the 90 days trading horizon Erajaya Swasembada is expected to generate 4.21 times less return on investment than Sona Topas. But when comparing it to its historical volatility, Erajaya Swasembada Tbk is 2.65 times less risky than Sona Topas. It trades about 0.02 of its potential returns per unit of risk. Sona Topas Tourism is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  419,000  in Sona Topas Tourism on December 30, 2024 and sell it today you would lose (48,000) from holding Sona Topas Tourism or give up 11.46% of portfolio value over 90 days.

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

Erajaya Swasembada Tbk  vs.  Sona Topas Tourism

Erajaya Swasembada Tbk

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Erajaya Swasembada Tbk are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Erajaya Swasembada is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Sona Topas Tourism

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sona Topas Tourism are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Sona Topas disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Erajaya Swasembada and Sona Topas

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

The idea behind Erajaya Swasembada Tbk and Sona Topas Tourism 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.