Correlation Between Gozco Plantations and Bakrie Sumatera

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

By analyzing existing cross correlation between Gozco Plantations Tbk and Bakrie Sumatera Plantations, you can compare the effects of market volatilities on Gozco Plantations and Bakrie Sumatera 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 Gozco Plantations with a short position of Bakrie Sumatera. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gozco Plantations and Bakrie Sumatera.

Diversification Opportunities for Gozco Plantations and Bakrie Sumatera

0.8

Correlation Coefficient

Gozco Plantations  Bakrie Sumatera

Very poor diversification

The 3 months correlation between Gozco and Bakrie is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Gozco Plantations Tbk and Bakrie Sumatera Plantations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bakrie Sumatera Plan and Gozco Plantations 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 Gozco Plantations Tbk are associated (or correlated) with Bakrie Sumatera. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bakrie Sumatera Plan has no effect on the direction of Gozco Plantations i.e., Gozco Plantations and Bakrie Sumatera go up and down completely randomly.

Pair Corralation between Gozco Plantations and Bakrie Sumatera

Assuming the 90 days trading horizon Gozco Plantations is expected to generate 2.7 times less return on investment than Bakrie Sumatera. But when comparing it to its historical volatility, Gozco Plantations Tbk is 1.14 times less risky than Bakrie Sumatera. It trades about 0.08 of its potential returns per unit of risk. Bakrie Sumatera Plantations is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  8,400  in Bakrie Sumatera Plantations on September 17, 2024 and sell it today you would earn a total of  3,000  from holding Bakrie Sumatera Plantations or generate 35.71% return on investment over 90 days.

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

Gozco Plantations Tbk  vs.  Bakrie Sumatera Plantations

Gozco Plantations Tbk

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gozco Plantations Tbk are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Gozco Plantations may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Bakrie Sumatera Plan

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bakrie Sumatera Plantations are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Bakrie Sumatera disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gozco Plantations and Bakrie Sumatera

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

The idea behind Gozco Plantations Tbk and Bakrie Sumatera Plantations 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.