Correlation Between Indonesian Tobacco and Bekasi Fajar

Can any of the company-specific risk be diversified away by investing in both Indonesian Tobacco and Bekasi Fajar 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 Indonesian Tobacco and Bekasi Fajar into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Indonesian Tobacco Tbk and Bekasi Fajar Industrial, you can compare the effects of market volatilities on Indonesian Tobacco and Bekasi Fajar 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 Indonesian Tobacco with a short position of Bekasi Fajar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indonesian Tobacco and Bekasi Fajar.

Diversification Opportunities for Indonesian Tobacco and Bekasi Fajar

-0.13

Correlation Coefficient

Indonesian Tobacco  Bekasi Fajar

Good diversification

The 3 months correlation between Indonesian and Bekasi is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Indonesian Tobacco Tbk and Bekasi Fajar Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bekasi Fajar Industrial and Indonesian Tobacco 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 Indonesian Tobacco Tbk are associated (or correlated) with Bekasi Fajar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bekasi Fajar Industrial has no effect on the direction of Indonesian Tobacco i.e., Indonesian Tobacco and Bekasi Fajar go up and down completely randomly.

Pair Corralation between Indonesian Tobacco and Bekasi Fajar

Assuming the 90 days trading horizon Indonesian Tobacco Tbk is expected to generate 0.76 times more return on investment than Bekasi Fajar. However, Indonesian Tobacco Tbk is 1.31 times less risky than Bekasi Fajar. It trades about 0.01 of its potential returns per unit of risk. Bekasi Fajar Industrial is currently generating about -0.19 per unit of risk. If you would invest  26,000  in Indonesian Tobacco Tbk on September 4, 2024 and sell it today you would earn a total of  0.00  from holding Indonesian Tobacco Tbk or generate 0.0% return on investment over 90 days.

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

Indonesian Tobacco Tbk  vs.  Bekasi Fajar Industrial

Indonesian Tobacco Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indonesian Tobacco Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Indonesian Tobacco is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Bekasi Fajar Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bekasi Fajar Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Indonesian Tobacco and Bekasi Fajar

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

The idea behind Indonesian Tobacco Tbk and Bekasi Fajar Industrial 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .