Correlation Between BFI Finance and Sumber Alfaria

Can any of the company-specific risk be diversified away by investing in both BFI Finance and Sumber Alfaria 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 BFI Finance and Sumber Alfaria into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BFI Finance Indonesia and Sumber Alfaria Trijaya, you can compare the effects of market volatilities on BFI Finance and Sumber Alfaria 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 BFI Finance with a short position of Sumber Alfaria. Check out your portfolio center. Please also check ongoing floating volatility patterns of BFI Finance and Sumber Alfaria.

Diversification Opportunities for BFI Finance and Sumber Alfaria

0.33

Correlation Coefficient

BFI Finance  Sumber Alfaria

Weak diversification

The 3 months correlation between BFI and Sumber is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding BFI Finance Indonesia and Sumber Alfaria Trijaya in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumber Alfaria Trijaya and BFI Finance 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 BFI Finance Indonesia are associated (or correlated) with Sumber Alfaria. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumber Alfaria Trijaya has no effect on the direction of BFI Finance i.e., BFI Finance and Sumber Alfaria go up and down completely randomly.

Pair Corralation between BFI Finance and Sumber Alfaria

Assuming the 90 days trading horizon BFI Finance Indonesia is expected to under-perform the Sumber Alfaria. In addition to that, BFI Finance is 1.21 times more volatile than Sumber Alfaria Trijaya. It trades about -0.01 of its total potential returns per unit of risk. Sumber Alfaria Trijaya is currently generating about 0.0 per unit of volatility. If you would invest  287,000  in Sumber Alfaria Trijaya on September 3, 2024 and sell it today you would lose (2,000) from holding Sumber Alfaria Trijaya or give up 0.7% of portfolio value over 90 days.

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

BFI Finance Indonesia  vs.  Sumber Alfaria Trijaya

BFI Finance Indonesia

Risk-Adjusted Performance

0 of 100

Very Weak

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

Sumber Alfaria Trijaya

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sumber Alfaria Trijaya has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Sumber Alfaria 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 BFI Finance and Sumber Alfaria

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

The idea behind BFI Finance Indonesia and Sumber Alfaria Trijaya 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.