Correlation Between TBS Energi and Resource Alam

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

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

Diversification Opportunities for TBS Energi and Resource Alam

0.71

Correlation Coefficient

TBS Energi  Resource Alam

Poor diversification

The 3 months correlation between TBS and Resource is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding TBS Energi Utama and Resource Alam Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Resource Alam Indonesia and TBS Energi 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 TBS Energi Utama are associated (or correlated) with Resource Alam. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Resource Alam Indonesia has no effect on the direction of TBS Energi i.e., TBS Energi and Resource Alam go up and down completely randomly.

Pair Corralation between TBS Energi and Resource Alam

Assuming the 90 days trading horizon TBS Energi Utama is expected to under-perform the Resource Alam. In addition to that, TBS Energi is 2.82 times more volatile than Resource Alam Indonesia. It trades about -0.02 of its total potential returns per unit of risk. Resource Alam Indonesia is currently generating about -0.04 per unit of volatility. If you would invest  56,500  in Resource Alam Indonesia on September 12, 2024 and sell it today you would lose (3,000) from holding Resource Alam Indonesia or give up 5.31% of portfolio value over 90 days.

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

TBS Energi Utama  vs.  Resource Alam Indonesia

TBS Energi Utama

Risk-Adjusted Performance

0 of 100

Very Weak

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

Resource Alam Indonesia

Risk-Adjusted Performance

0 of 100

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

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

The idea behind TBS Energi Utama and Resource Alam Indonesia 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.