Correlation Between Kencana Energi and Optima Prima

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

By analyzing existing cross correlation between Kencana Energi Lestari and Optima Prima Metal, you can compare the effects of market volatilities on Kencana Energi and Optima 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 Kencana Energi with a short position of Optima Prima. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kencana Energi and Optima Prima.

Diversification Opportunities for Kencana Energi and Optima Prima

0.88

Correlation Coefficient

Kencana Energi  Optima Prima

Very poor diversification

The 3 months correlation between Kencana and Optima is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Kencana Energi Lestari and Optima Prima Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optima Prima Metal and Kencana Energi 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 Kencana Energi Lestari are associated (or correlated) with Optima Prima. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Optima Prima Metal has no effect on the direction of Kencana Energi i.e., Kencana Energi and Optima Prima go up and down completely randomly.

Pair Corralation between Kencana Energi and Optima Prima

Assuming the 90 days trading horizon Kencana Energi Lestari is expected to generate 0.3 times more return on investment than Optima Prima. However, Kencana Energi Lestari is 3.34 times less risky than Optima Prima. It trades about -0.12 of its potential returns per unit of risk. Optima Prima Metal is currently generating about -0.27 per unit of risk. If you would invest  68,500  in Kencana Energi Lestari on September 17, 2024 and sell it today you would lose (6,000) from holding Kencana Energi Lestari or give up 8.76% of portfolio value over 90 days.

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

Kencana Energi Lestari  vs.  Optima Prima Metal

Kencana Energi Lestari

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kencana Energi Lestari has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Optima Prima Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Optima Prima Metal 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.

Pair Trading with Kencana Energi and Optima Prima

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

The idea behind Kencana Energi Lestari and Optima Prima Metal 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.