Correlation Between Clipan Finance and BFI Finance

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

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

Diversification Opportunities for Clipan Finance and BFI Finance

0.72

Correlation Coefficient

Clipan Finance  BFI Finance

Poor diversification

The 3 months correlation between Clipan and BFI is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Clipan Finance Indonesia and BFI Finance Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BFI Finance Indonesia and Clipan 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 Clipan Finance Indonesia are associated (or correlated) with BFI Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BFI Finance Indonesia has no effect on the direction of Clipan Finance i.e., Clipan Finance and BFI Finance go up and down completely randomly.

Pair Corralation between Clipan Finance and BFI Finance

Assuming the 90 days trading horizon Clipan Finance Indonesia is expected to under-perform the BFI Finance. But the stock apears to be less risky and, when comparing its historical volatility, Clipan Finance Indonesia is 2.11 times less risky than BFI Finance. The stock trades about -0.41 of its potential returns per unit of risk. The BFI Finance Indonesia is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  95,500  in BFI Finance Indonesia on September 3, 2024 and sell it today you would lose (2,500) from holding BFI Finance Indonesia or give up 2.62% of portfolio value over 90 days.

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

Clipan Finance Indonesia  vs.  BFI Finance Indonesia

Clipan Finance Indonesia

Risk-Adjusted Performance

0 of 100

Very Weak

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

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.

Pair Trading with Clipan Finance and BFI Finance

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

The idea behind Clipan Finance Indonesia and BFI Finance 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.

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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.