Correlation Between Tunas Baru and Sinar Mas

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

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

Diversification Opportunities for Tunas Baru and Sinar Mas

0.45

Correlation Coefficient

Tunas Baru  Sinar Mas

Very weak diversification

The 3 months correlation between Tunas and Sinar is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Tunas Baru Lampung and Sinar Mas Agro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinar Mas Agro and Tunas Baru 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 Tunas Baru Lampung are associated (or correlated) with Sinar Mas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinar Mas Agro has no effect on the direction of Tunas Baru i.e., Tunas Baru and Sinar Mas go up and down completely randomly.

Pair Corralation between Tunas Baru and Sinar Mas

Assuming the 90 days trading horizon Tunas Baru Lampung is expected to generate 0.7 times more return on investment than Sinar Mas. However, Tunas Baru Lampung is 1.42 times less risky than Sinar Mas. It trades about 0.07 of its potential returns per unit of risk. Sinar Mas Agro is currently generating about -0.03 per unit of risk. If you would invest  60,800  in Tunas Baru Lampung on September 14, 2024 and sell it today you would earn a total of  2,700  from holding Tunas Baru Lampung or generate 4.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Tunas Baru Lampung  vs.  Sinar Mas Agro

Tunas Baru Lampung

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tunas Baru Lampung are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Tunas Baru is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

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.

Pair Trading with Tunas Baru and Sinar Mas

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

The idea behind Tunas Baru Lampung and Sinar Mas Agro 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.