Correlation Between Provident Agro and Bakrie Sumatera

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

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

Diversification Opportunities for Provident Agro and Bakrie Sumatera

-0.45

Correlation Coefficient

Provident Agro  Bakrie Sumatera

Very good diversification

The 3 months correlation between Provident and Bakrie is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Provident Agro 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 Provident Agro 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 Provident Agro 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 Provident Agro i.e., Provident Agro and Bakrie Sumatera go up and down completely randomly.

Pair Corralation between Provident Agro and Bakrie Sumatera

Assuming the 90 days trading horizon Provident Agro Tbk is expected to under-perform the Bakrie Sumatera. In addition to that, Provident Agro is 1.44 times more volatile than Bakrie Sumatera Plantations. It trades about -0.03 of its total potential returns per unit of risk. Bakrie Sumatera Plantations is currently generating about 0.0 per unit of volatility. If you would invest  13,600  in Bakrie Sumatera Plantations on September 13, 2024 and sell it today you would lose (1,400) from holding Bakrie Sumatera Plantations or give up 10.29% of portfolio value over 90 days.

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

Provident Agro Tbk  vs.  Bakrie Sumatera Plantations

Provident Agro Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

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

Bakrie Sumatera Plan

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bakrie Sumatera Plantations are ranked lower than 19 (%) 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 Provident Agro and Bakrie Sumatera

The main advantage of trading using opposite Provident Agro and Bakrie Sumatera positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Provident Agro 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 Provident Agro 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.