Correlation Between Kencana Energi and Bali Towerindo

Can any of the company-specific risk be diversified away by investing in both Kencana Energi and Bali Towerindo 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 Kencana Energi and Bali Towerindo into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Kencana Energi Lestari and Bali Towerindo Sentra, you can compare the effects of market volatilities on Kencana Energi and Bali Towerindo 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 Kencana Energi with a short position of Bali Towerindo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kencana Energi and Bali Towerindo.

Diversification Opportunities for Kencana Energi and Bali Towerindo

-0.61

Correlation Coefficient

Kencana Energi  Bali Towerindo

Excellent diversification

The 3 months correlation between Kencana and Bali is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Kencana Energi Lestari and Bali Towerindo Sentra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bali Towerindo Sentra and Kencana Energi 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 Kencana Energi Lestari are associated (or correlated) with Bali Towerindo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bali Towerindo Sentra has no effect on the direction of Kencana Energi i.e., Kencana Energi and Bali Towerindo go up and down completely randomly.

Pair Corralation between Kencana Energi and Bali Towerindo

Assuming the 90 days trading horizon Kencana Energi is expected to generate 2.95 times less return on investment than Bali Towerindo. But when comparing it to its historical volatility, Kencana Energi Lestari is 1.48 times less risky than Bali Towerindo. It trades about 0.03 of its potential returns per unit of risk. Bali Towerindo Sentra is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  74,586  in Bali Towerindo Sentra on October 11, 2024 and sell it today you would earn a total of  77,414  from holding Bali Towerindo Sentra or generate 103.79% return on investment over 90 days.

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

Kencana Energi Lestari  vs.  Bali Towerindo Sentra

Kencana Energi Lestari

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kencana Energi Lestari 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 February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Bali Towerindo Sentra

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bali Towerindo Sentra are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Bali Towerindo disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kencana Energi and Bali Towerindo

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

The idea behind Kencana Energi Lestari and Bali Towerindo Sentra 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.