Correlation Between Pratama Widya and Kencana Energi

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Can any of the company-specific risk be diversified away by investing in both Pratama Widya 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 Pratama Widya and Kencana Energi into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pratama Widya Tbk and Kencana Energi Lestari, you can compare the effects of market volatilities on Pratama Widya 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 Pratama Widya with a short position of Kencana Energi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pratama Widya and Kencana Energi.

Diversification Opportunities for Pratama Widya and Kencana Energi

0.83
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Pratama and Kencana is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Pratama Widya Tbk 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 Pratama Widya 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 Pratama Widya Tbk 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 Pratama Widya i.e., Pratama Widya and Kencana Energi go up and down completely randomly.

Pair Corralation between Pratama Widya and Kencana Energi

Assuming the 90 days trading horizon Pratama Widya Tbk is expected to generate 0.22 times more return on investment than Kencana Energi. However, Pratama Widya Tbk is 4.56 times less risky than Kencana Energi. It trades about -0.46 of its potential returns per unit of risk. Kencana Energi Lestari is currently generating about -0.13 per unit of risk. If you would invest  89,500  in Pratama Widya Tbk on October 10, 2024 and sell it today you would lose (4,500) from holding Pratama Widya Tbk or give up 5.03% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Pratama Widya Tbk  vs.  Kencana Energi Lestari

 Performance 
       Timeline  
Pratama Widya Tbk 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
Over the last 90 days Pratama Widya Tbk 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.
Kencana Energi Lestari 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.

Pratama Widya and Kencana Energi Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Pratama Widya and Kencana Energi

The main advantage of trading using opposite Pratama Widya and Kencana Energi positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pratama Widya 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 Pratama Widya Tbk 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.
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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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

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