Correlation Between FAP Agri and Cisadane Sawit

Can any of the company-specific risk be diversified away by investing in both FAP Agri and Cisadane Sawit 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 Cisadane Sawit 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 Cisadane Sawit Raya, you can compare the effects of market volatilities on FAP Agri and Cisadane Sawit 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 Cisadane Sawit. Check out your portfolio center. Please also check ongoing floating volatility patterns of FAP Agri and Cisadane Sawit.

Diversification Opportunities for FAP Agri and Cisadane Sawit

0.4

Correlation Coefficient

FAP Agri  Cisadane Sawit

Very weak diversification

The 3 months correlation between FAP and Cisadane is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding FAP Agri Tbk and Cisadane Sawit Raya in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisadane Sawit Raya 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 Cisadane Sawit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cisadane Sawit Raya has no effect on the direction of FAP Agri i.e., FAP Agri and Cisadane Sawit go up and down completely randomly.

Pair Corralation between FAP Agri and Cisadane Sawit

Assuming the 90 days trading horizon FAP Agri Tbk is expected to generate 0.25 times more return on investment than Cisadane Sawit. However, FAP Agri Tbk is 4.02 times less risky than Cisadane Sawit. It trades about 0.13 of its potential returns per unit of risk. Cisadane Sawit Raya is currently generating about -0.17 per unit of risk. If you would invest  532,500  in FAP Agri Tbk on October 22, 2024 and sell it today you would earn a total of  5,000  from holding FAP Agri Tbk or generate 0.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.44%
Values	Daily Returns

FAP Agri Tbk  vs.  Cisadane Sawit Raya

FAP Agri Tbk

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FAP Agri Tbk are ranked lower than 5 (%) 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.

Cisadane Sawit Raya

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cisadane Sawit Raya are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Cisadane Sawit may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with FAP Agri and Cisadane Sawit

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

The idea behind FAP Agri Tbk and Cisadane Sawit Raya 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.