Correlation Between Jakarta Int and BFI Finance

Can any of the company-specific risk be diversified away by investing in both Jakarta Int and BFI Finance 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 Jakarta Int and BFI Finance into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Jakarta Int Hotels and BFI Finance Indonesia, you can compare the effects of market volatilities on Jakarta Int and BFI Finance 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 Jakarta Int with a short position of BFI Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jakarta Int and BFI Finance.

Diversification Opportunities for Jakarta Int and BFI Finance

-0.59

Correlation Coefficient

Jakarta Int  BFI Finance

Excellent diversification

The 3 months correlation between Jakarta and BFI is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Jakarta Int Hotels and BFI Finance Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BFI Finance Indonesia and Jakarta Int 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 Jakarta Int Hotels are associated (or correlated) with BFI Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BFI Finance Indonesia has no effect on the direction of Jakarta Int i.e., Jakarta Int and BFI Finance go up and down completely randomly.

Pair Corralation between Jakarta Int and BFI Finance

Assuming the 90 days trading horizon Jakarta Int Hotels is expected to generate 4.03 times more return on investment than BFI Finance. However, Jakarta Int is 4.03 times more volatile than BFI Finance Indonesia. It trades about 0.3 of its potential returns per unit of risk. BFI Finance Indonesia is currently generating about -0.02 per unit of risk. If you would invest  32,400  in Jakarta Int Hotels on September 5, 2024 and sell it today you would earn a total of  118,600  from holding Jakarta Int Hotels or generate 366.05% return on investment over 90 days.

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

Jakarta Int Hotels  vs.  BFI Finance Indonesia

Jakarta Int Hotels

Risk-Adjusted Performance

23 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Jakarta Int Hotels are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Jakarta Int disclosed solid returns over the last few months and may actually be approaching a breakup point.

BFI Finance Indonesia

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Jakarta Int and BFI Finance

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

The idea behind Jakarta Int Hotels and BFI Finance Indonesia 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.