Correlation Between Bhuwanatala Indah and Kapuas Prima

Can any of the company-specific risk be diversified away by investing in both Bhuwanatala Indah and Kapuas Prima 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 Bhuwanatala Indah and Kapuas Prima into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bhuwanatala Indah Permai and Kapuas Prima Coal, you can compare the effects of market volatilities on Bhuwanatala Indah and Kapuas Prima 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 Bhuwanatala Indah with a short position of Kapuas Prima. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bhuwanatala Indah and Kapuas Prima.

Diversification Opportunities for Bhuwanatala Indah and Kapuas Prima

-0.12

Correlation Coefficient

Bhuwanatala Indah  Kapuas Prima

Good diversification

The 3 months correlation between Bhuwanatala and Kapuas is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Bhuwanatala Indah Permai and Kapuas Prima Coal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kapuas Prima Coal and Bhuwanatala Indah 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 Bhuwanatala Indah Permai are associated (or correlated) with Kapuas Prima. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kapuas Prima Coal has no effect on the direction of Bhuwanatala Indah i.e., Bhuwanatala Indah and Kapuas Prima go up and down completely randomly.

Pair Corralation between Bhuwanatala Indah and Kapuas Prima

Assuming the 90 days trading horizon Bhuwanatala Indah is expected to generate 1.06 times less return on investment than Kapuas Prima. But when comparing it to its historical volatility, Bhuwanatala Indah Permai is 1.38 times less risky than Kapuas Prima. It trades about 0.09 of its potential returns per unit of risk. Kapuas Prima Coal is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,600  in Kapuas Prima Coal on September 13, 2024 and sell it today you would earn a total of  200.00  from holding Kapuas Prima Coal or generate 12.5% return on investment over 90 days.

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

Bhuwanatala Indah Permai  vs.  Kapuas Prima Coal

Bhuwanatala Indah Permai

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bhuwanatala Indah Permai are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Bhuwanatala Indah disclosed solid returns over the last few months and may actually be approaching a breakup point.

Kapuas Prima Coal

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kapuas Prima Coal are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Kapuas Prima disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bhuwanatala Indah and Kapuas Prima

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

The idea behind Bhuwanatala Indah Permai and Kapuas Prima Coal 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.