Correlation Between FAP Agri and Citra Borneo

Can any of the company-specific risk be diversified away by investing in both FAP Agri and Citra Borneo 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 FAP Agri and Citra Borneo into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between FAP Agri Tbk and Citra Borneo Utama, you can compare the effects of market volatilities on FAP Agri and Citra Borneo 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 FAP Agri with a short position of Citra Borneo. Check out your portfolio center. Please also check ongoing floating volatility patterns of FAP Agri and Citra Borneo.

Diversification Opportunities for FAP Agri and Citra Borneo

0.11

Correlation Coefficient

FAP Agri  Citra Borneo

Average diversification

The 3 months correlation between FAP and Citra is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding FAP Agri Tbk and Citra Borneo Utama in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citra Borneo Utama and FAP Agri 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 FAP Agri Tbk are associated (or correlated) with Citra Borneo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citra Borneo Utama has no effect on the direction of FAP Agri i.e., FAP Agri and Citra Borneo go up and down completely randomly.

Pair Corralation between FAP Agri and Citra Borneo

Assuming the 90 days trading horizon FAP Agri is expected to generate 1.48 times less return on investment than Citra Borneo. But when comparing it to its historical volatility, FAP Agri Tbk is 6.3 times less risky than Citra Borneo. It trades about 0.21 of its potential returns per unit of risk. Citra Borneo Utama is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  94,000  in Citra Borneo Utama on December 20, 2024 and sell it today you would earn a total of  5,500  from holding Citra Borneo Utama or generate 5.85% return on investment over 90 days.

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

FAP Agri Tbk  vs.  Citra Borneo Utama

FAP Agri Tbk

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in FAP Agri Tbk are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, FAP Agri is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Citra Borneo Utama

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Citra Borneo Utama are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Citra Borneo may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with FAP Agri and Citra Borneo

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

The idea behind FAP Agri Tbk and Citra Borneo Utama 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.