Correlation Between Indo Straits and Buana Listya

Can any of the company-specific risk be diversified away by investing in both Indo Straits and Buana Listya 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 Indo Straits and Buana Listya into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Indo Straits Tbk and Buana Listya Tama, you can compare the effects of market volatilities on Indo Straits and Buana Listya 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 Indo Straits with a short position of Buana Listya. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indo Straits and Buana Listya.

Diversification Opportunities for Indo Straits and Buana Listya

0.42

Correlation Coefficient

Indo Straits  Buana Listya

Very weak diversification

The 3 months correlation between Indo and Buana is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Indo Straits Tbk and Buana Listya Tama in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Buana Listya Tama and Indo Straits 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 Indo Straits Tbk are associated (or correlated) with Buana Listya. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Buana Listya Tama has no effect on the direction of Indo Straits i.e., Indo Straits and Buana Listya go up and down completely randomly.

Pair Corralation between Indo Straits and Buana Listya

Assuming the 90 days trading horizon Indo Straits Tbk is expected to generate 2.12 times more return on investment than Buana Listya. However, Indo Straits is 2.12 times more volatile than Buana Listya Tama. It trades about 0.05 of its potential returns per unit of risk. Buana Listya Tama is currently generating about 0.03 per unit of risk. If you would invest  22,000  in Indo Straits Tbk on September 17, 2024 and sell it today you would earn a total of  1,400  from holding Indo Straits Tbk or generate 6.36% return on investment over 90 days.

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

Indo Straits Tbk  vs.  Buana Listya Tama

Indo Straits Tbk

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Indo Straits Tbk are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Indo Straits disclosed solid returns over the last few months and may actually be approaching a breakup point.

Buana Listya Tama

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Buana Listya Tama are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Buana Listya may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Indo Straits and Buana Listya

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

The idea behind Indo Straits Tbk and Buana Listya Tama 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.