Correlation Between Sinar Mas and Bakrie Sumatera

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

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

Diversification Opportunities for Sinar Mas and Bakrie Sumatera

0.46

Correlation Coefficient

Sinar Mas  Bakrie Sumatera

Very weak diversification

The 3 months correlation between Sinar and Bakrie is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Sinar Mas Agro 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 Sinar Mas 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 Sinar Mas Agro 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 Sinar Mas i.e., Sinar Mas and Bakrie Sumatera go up and down completely randomly.

Pair Corralation between Sinar Mas and Bakrie Sumatera

Assuming the 90 days trading horizon Sinar Mas Agro is expected to under-perform the Bakrie Sumatera. But the stock apears to be less risky and, when comparing its historical volatility, Sinar Mas Agro is 1.68 times less risky than Bakrie Sumatera. The stock trades about -0.04 of its potential returns per unit of risk. The Bakrie Sumatera Plantations is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  8,400  in Bakrie Sumatera Plantations on September 15, 2024 and sell it today you would earn a total of  3,000  from holding Bakrie Sumatera Plantations or generate 35.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Sinar Mas Agro  vs.  Bakrie Sumatera Plantations

Sinar Mas Agro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sinar Mas Agro has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Sinar Mas 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

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bakrie Sumatera Plantations are ranked lower than 15 (%) 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 Sinar Mas and Bakrie Sumatera

The main advantage of trading using opposite Sinar Mas and Bakrie Sumatera positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sinar Mas 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 Sinar Mas Agro 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.