Correlation Between Alakasa Industrindo and Bumi Teknokultura

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

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

Diversification Opportunities for Alakasa Industrindo and Bumi Teknokultura

0.85

Correlation Coefficient

Alakasa Industrindo  Bumi Teknokultura

Very poor diversification

The 3 months correlation between Alakasa and Bumi is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Alakasa Industrindo Tbk and Bumi Teknokultura Unggul in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bumi Teknokultura Unggul and Alakasa Industrindo 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 Alakasa Industrindo Tbk are associated (or correlated) with Bumi Teknokultura. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bumi Teknokultura Unggul has no effect on the direction of Alakasa Industrindo i.e., Alakasa Industrindo and Bumi Teknokultura go up and down completely randomly.

Pair Corralation between Alakasa Industrindo and Bumi Teknokultura

Assuming the 90 days trading horizon Alakasa Industrindo Tbk is expected to generate 1.05 times more return on investment than Bumi Teknokultura. However, Alakasa Industrindo is 1.05 times more volatile than Bumi Teknokultura Unggul. It trades about -0.44 of its potential returns per unit of risk. Bumi Teknokultura Unggul is currently generating about -2.68 per unit of risk. If you would invest  43,200  in Alakasa Industrindo Tbk on February 4, 2024 and sell it today you would lose (8,200) from holding Alakasa Industrindo Tbk or give up 18.98% of portfolio value over 90 days.

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

Alakasa Industrindo Tbk  vs.  Bumi Teknokultura Unggul

Alakasa Industrindo Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alakasa Industrindo 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 basic indicators remain quite persistent which may send shares a bit higher in June 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Bumi Teknokultura Unggul

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bumi Teknokultura Unggul 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 basic indicators remain quite persistent which may send shares a bit higher in June 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Alakasa Industrindo and Bumi Teknokultura

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

The idea behind Alakasa Industrindo Tbk and Bumi Teknokultura Unggul 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.