Correlation Between Bukit Asam and Medco Energi

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

By analyzing existing cross correlation between Bukit Asam Tbk and Medco Energi Internasional, you can compare the effects of market volatilities on Bukit Asam and Medco 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 Bukit Asam with a short position of Medco Energi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bukit Asam and Medco Energi.

Diversification Opportunities for Bukit Asam and Medco Energi

0.77

Correlation Coefficient

Bukit Asam  Medco Energi

Poor diversification

The 3 months correlation between Bukit and Medco is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Bukit Asam Tbk and Medco Energi Internasional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medco Energi Interna and Bukit Asam 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 Bukit Asam Tbk are associated (or correlated) with Medco Energi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medco Energi Interna has no effect on the direction of Bukit Asam i.e., Bukit Asam and Medco Energi go up and down completely randomly.

Pair Corralation between Bukit Asam and Medco Energi

Assuming the 90 days trading horizon Bukit Asam Tbk is expected to generate 0.72 times more return on investment than Medco Energi. However, Bukit Asam Tbk is 1.38 times less risky than Medco Energi. It trades about -0.02 of its potential returns per unit of risk. Medco Energi Internasional is currently generating about -0.07 per unit of risk. If you would invest  280,000  in Bukit Asam Tbk on September 3, 2024 and sell it today you would lose (9,000) from holding Bukit Asam Tbk or give up 3.21% of portfolio value over 90 days.

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

Bukit Asam Tbk  vs.  Medco Energi Internasional

Bukit Asam Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

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

Medco Energi Interna

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Medco Energi Internasional has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Bukit Asam and Medco Energi

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

The idea behind Bukit Asam Tbk and Medco Energi Internasional 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.