Correlation Between Sekar Bumi and Mandom Indonesia

Can any of the company-specific risk be diversified away by investing in both Sekar Bumi and Mandom Indonesia 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 Sekar Bumi and Mandom Indonesia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sekar Bumi Tbk and Mandom Indonesia Tbk, you can compare the effects of market volatilities on Sekar Bumi and Mandom Indonesia 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 Sekar Bumi with a short position of Mandom Indonesia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sekar Bumi and Mandom Indonesia.

Diversification Opportunities for Sekar Bumi and Mandom Indonesia

0.25

Correlation Coefficient

Sekar Bumi  Mandom Indonesia

Modest diversification

The 3 months correlation between Sekar and Mandom is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Sekar Bumi Tbk and Mandom Indonesia Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mandom Indonesia Tbk and Sekar Bumi 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 Sekar Bumi Tbk are associated (or correlated) with Mandom Indonesia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mandom Indonesia Tbk has no effect on the direction of Sekar Bumi i.e., Sekar Bumi and Mandom Indonesia go up and down completely randomly.

Pair Corralation between Sekar Bumi and Mandom Indonesia

Assuming the 90 days trading horizon Sekar Bumi Tbk is expected to generate 3.65 times more return on investment than Mandom Indonesia. However, Sekar Bumi is 3.65 times more volatile than Mandom Indonesia Tbk. It trades about 0.04 of its potential returns per unit of risk. Mandom Indonesia Tbk is currently generating about -0.12 per unit of risk. If you would invest  39,400  in Sekar Bumi Tbk on November 29, 2024 and sell it today you would lose (1,800) from holding Sekar Bumi Tbk or give up 4.57% of portfolio value over 90 days.

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

Sekar Bumi Tbk  vs.  Mandom Indonesia Tbk

Sekar Bumi Tbk

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sekar Bumi Tbk are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Sekar Bumi disclosed solid returns over the last few months and may actually be approaching a breakup point.

Mandom Indonesia Tbk

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Sekar Bumi and Mandom Indonesia

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

The idea behind Sekar Bumi Tbk and Mandom Indonesia Tbk 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.