Correlation Between Alumindo Light and Bumi Teknokultura

Can any of the company-specific risk be diversified away by investing in both Alumindo Light and Bumi Teknokultura 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 Alumindo Light and Bumi Teknokultura into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alumindo Light Metal and Bumi Teknokultura Unggul, you can compare the effects of market volatilities on Alumindo Light and Bumi Teknokultura 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 Alumindo Light with a short position of Bumi Teknokultura. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alumindo Light and Bumi Teknokultura.

Diversification Opportunities for Alumindo Light and Bumi Teknokultura

0.77

Correlation Coefficient

Alumindo Light  Bumi Teknokultura

Poor diversification

The 3 months correlation between Alumindo and Bumi is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Alumindo Light Metal and Bumi Teknokultura Unggul in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bumi Teknokultura Unggul and Alumindo Light 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 Alumindo Light Metal are associated (or correlated) with Bumi Teknokultura. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bumi Teknokultura Unggul has no effect on the direction of Alumindo Light i.e., Alumindo Light and Bumi Teknokultura go up and down completely randomly.

Pair Corralation between Alumindo Light and Bumi Teknokultura

Assuming the 90 days trading horizon Alumindo Light Metal is expected to generate 0.14 times more return on investment than Bumi Teknokultura. However, Alumindo Light Metal is 7.07 times less risky than Bumi Teknokultura. It trades about -0.69 of its potential returns per unit of risk. Bumi Teknokultura Unggul is currently generating about -0.6 per unit of risk. If you would invest  8,700  in Alumindo Light Metal on February 20, 2024 and sell it today you would lose (1,800) from holding Alumindo Light Metal or give up 20.69% of portfolio value over 90 days.

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

Alumindo Light Metal  vs.  Bumi Teknokultura Unggul

Alumindo Light Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alumindo Light Metal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in June 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Bumi Teknokultura Unggul

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bumi Teknokultura Unggul has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in June 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Alumindo Light and Bumi Teknokultura

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

The idea behind Alumindo Light Metal and Bumi Teknokultura Unggul 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.