Correlation Between Bakrie Sumatera and Darma Henwa

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

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

Diversification Opportunities for Bakrie Sumatera and Darma Henwa

0.93

Correlation Coefficient

Bakrie Sumatera  Darma Henwa

Almost no diversification

The 3 months correlation between Bakrie and Darma is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Bakrie Sumatera Plantations and Darma Henwa Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darma Henwa Tbk and Bakrie Sumatera 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 Bakrie Sumatera Plantations are associated (or correlated) with Darma Henwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Darma Henwa Tbk has no effect on the direction of Bakrie Sumatera i.e., Bakrie Sumatera and Darma Henwa go up and down completely randomly.

Pair Corralation between Bakrie Sumatera and Darma Henwa

Assuming the 90 days trading horizon Bakrie Sumatera is expected to generate 1.42 times less return on investment than Darma Henwa. But when comparing it to its historical volatility, Bakrie Sumatera Plantations is 2.11 times less risky than Darma Henwa. It trades about 0.23 of its potential returns per unit of risk. Darma Henwa Tbk is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  6,800  in Darma Henwa Tbk on September 3, 2024 and sell it today you would earn a total of  3,800  from holding Darma Henwa Tbk or generate 55.88% return on investment over 90 days.

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

Bakrie Sumatera Plantations  vs.  Darma Henwa Tbk

Bakrie Sumatera Plan

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bakrie Sumatera Plantations are ranked lower than 18 (%) 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.

Darma Henwa Tbk

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Darma Henwa Tbk are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Darma Henwa disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bakrie Sumatera and Darma Henwa

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

The idea behind Bakrie Sumatera Plantations and Darma Henwa 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.