Correlation Between Resource Alam and Kencana Energi

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

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

Diversification Opportunities for Resource Alam and Kencana Energi

-0.51

Correlation Coefficient

Resource Alam  Kencana Energi

Excellent diversification

The 3 months correlation between Resource and Kencana is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Resource Alam Indonesia and Kencana Energi Lestari in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kencana Energi Lestari and Resource Alam 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 Resource Alam Indonesia are associated (or correlated) with Kencana Energi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kencana Energi Lestari has no effect on the direction of Resource Alam i.e., Resource Alam and Kencana Energi go up and down completely randomly.

Pair Corralation between Resource Alam and Kencana Energi

Assuming the 90 days trading horizon Resource Alam Indonesia is expected to under-perform the Kencana Energi. In addition to that, Resource Alam is 1.03 times more volatile than Kencana Energi Lestari. It trades about -0.17 of its total potential returns per unit of risk. Kencana Energi Lestari is currently generating about 0.0 per unit of volatility. If you would invest  60,000  in Kencana Energi Lestari on December 23, 2024 and sell it today you would lose (1,000.00) from holding Kencana Energi Lestari or give up 1.67% of portfolio value over 90 days.

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

Resource Alam Indonesia  vs.  Kencana Energi Lestari

Resource Alam Indonesia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Resource Alam Indonesia 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 April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Kencana Energi Lestari

Risk-Adjusted Performance

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 quite persistent forward-looking signals, Kencana Energi 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 Resource Alam and Kencana Energi

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

The idea behind Resource Alam Indonesia and Kencana Energi Lestari 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.