Correlation Between Provident Agro and Mulia Boga

Can any of the company-specific risk be diversified away by investing in both Provident Agro and Mulia Boga 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 Provident Agro and Mulia Boga into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Provident Agro Tbk and Mulia Boga Raya, you can compare the effects of market volatilities on Provident Agro and Mulia Boga 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 Provident Agro with a short position of Mulia Boga. Check out your portfolio center. Please also check ongoing floating volatility patterns of Provident Agro and Mulia Boga.

Diversification Opportunities for Provident Agro and Mulia Boga

0.24

Correlation Coefficient

Provident Agro  Mulia Boga

Modest diversification

The 3 months correlation between Provident and Mulia is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Provident Agro Tbk and Mulia Boga Raya in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mulia Boga Raya and Provident Agro 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 Provident Agro Tbk are associated (or correlated) with Mulia Boga. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mulia Boga Raya has no effect on the direction of Provident Agro i.e., Provident Agro and Mulia Boga go up and down completely randomly.

Pair Corralation between Provident Agro and Mulia Boga

Assuming the 90 days trading horizon Provident Agro is expected to generate 22.68 times less return on investment than Mulia Boga. But when comparing it to its historical volatility, Provident Agro Tbk is 2.32 times less risky than Mulia Boga. It trades about 0.07 of its potential returns per unit of risk. Mulia Boga Raya is currently generating about 0.68 of returns per unit of risk over similar time horizon. If you would invest  45,733  in Mulia Boga Raya on October 6, 2024 and sell it today you would earn a total of  73,267  from holding Mulia Boga Raya or generate 160.21% return on investment over 90 days.

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

Provident Agro Tbk  vs.  Mulia Boga Raya

Provident Agro Tbk

Risk-Adjusted Performance

0 of 100

Weak

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

Mulia Boga Raya

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mulia Boga Raya are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite quite weak forward-looking signals, Mulia Boga disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Provident Agro and Mulia Boga

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

The idea behind Provident Agro Tbk and Mulia Boga 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.