Correlation Between Medco Energi and Bukit Asam

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

By analyzing existing cross correlation between Medco Energi Internasional and Bukit Asam Tbk, you can compare the effects of market volatilities on Medco Energi and Bukit Asam 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 Medco Energi with a short position of Bukit Asam. Check out your portfolio center. Please also check ongoing floating volatility patterns of Medco Energi and Bukit Asam.

Diversification Opportunities for Medco Energi and Bukit Asam

0.77

Correlation Coefficient

Medco Energi  Bukit Asam

Poor diversification

The 3 months correlation between Medco and Bukit is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Medco Energi Internasional and Bukit Asam Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bukit Asam Tbk and Medco 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 Medco Energi Internasional are associated (or correlated) with Bukit Asam. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bukit Asam Tbk has no effect on the direction of Medco Energi i.e., Medco Energi and Bukit Asam go up and down completely randomly.

Pair Corralation between Medco Energi and Bukit Asam

Assuming the 90 days trading horizon Medco Energi Internasional is expected to under-perform the Bukit Asam. In addition to that, Medco Energi is 1.38 times more volatile than Bukit Asam Tbk. It trades about -0.07 of its total potential returns per unit of risk. Bukit Asam Tbk is currently generating about -0.02 per unit of volatility. If you would invest  280,000  in Bukit Asam Tbk on September 3, 2024 and sell it today you would lose (9,000) from holding Bukit Asam Tbk or give up 3.21% of portfolio value over 90 days.

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

Medco Energi Internasional  vs.  Bukit Asam Tbk

Medco Energi Interna

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Medco Energi Internasional 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.

Bukit Asam Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bukit Asam Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Bukit Asam 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 Medco Energi and Bukit Asam

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

The idea behind Medco Energi Internasional and Bukit Asam 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.