Correlation Between Lautan Luas and Erajaya Swasembada

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

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

Diversification Opportunities for Lautan Luas and Erajaya Swasembada

-0.29

Correlation Coefficient

Lautan Luas  Erajaya Swasembada

Very good diversification

The 3 months correlation between Lautan and Erajaya is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Lautan Luas Tbk and Erajaya Swasembada Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erajaya Swasembada Tbk and Lautan Luas 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 Lautan Luas Tbk are associated (or correlated) with Erajaya Swasembada. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Erajaya Swasembada Tbk has no effect on the direction of Lautan Luas i.e., Lautan Luas and Erajaya Swasembada go up and down completely randomly.

Pair Corralation between Lautan Luas and Erajaya Swasembada

Assuming the 90 days trading horizon Lautan Luas Tbk is expected to under-perform the Erajaya Swasembada. But the stock apears to be less risky and, when comparing its historical volatility, Lautan Luas Tbk is 1.63 times less risky than Erajaya Swasembada. The stock trades about -0.03 of its potential returns per unit of risk. The Erajaya Swasembada Tbk is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  34,948  in Erajaya Swasembada Tbk on September 19, 2024 and sell it today you would earn a total of  5,652  from holding Erajaya Swasembada Tbk or generate 16.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

Lautan Luas Tbk  vs.  Erajaya Swasembada Tbk

Lautan Luas Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

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

Erajaya Swasembada Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Erajaya Swasembada Tbk 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.

Pair Trading with Lautan Luas and Erajaya Swasembada

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

The idea behind Lautan Luas Tbk and Erajaya Swasembada Tbk 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 Global Correlations module to find global opportunities by holding instruments from different markets.