Implementing the Variance-Covariance Method for Assessing Market Transaction Risks in Raw Material Sector Stocks
Abstract
The capital market plays a crucial role in supporting a country's economic growth. Besides being a funding source, the capital market also serves as an investment avenue for investors, particularly through stocks. Every investor must be willing to bear risks in line with their targeted returns. Risk is defined as the uncertainty of future outcomes due to market condition changes, and VaR (Value at Risk) is used to determine the tolerated loss at a certain confidence level. This study discusses the application of the Value at Risk (VaR) method using the Variance-Covariance approach to mitigate market risks in the portfolio of raw material sector stocks. The study focuses on two raw material sector stocks in Indonesia, assuming a normal distribution of asset price changes. The measurement results indicate that with an investment of Rp. 100,000,000.00, a 95% confidence level, and a 1-day period, the VaR of the portfolio of these five stocks is Rp. 2,769,750.00. This research provides critical insights to assist investors in understanding and managing portfolio risks, making VaR a key indicator to measure potential future risks and laying the foundation for decision-making in risk management.
Keywords
Full Text:
PDFReferences
Aulia Ikhsan, "The Use of Capital Asset Pricing Model Approach and Variance Covariance Method in Stock Portfolio Management Process", Gaussian Journal, Vol. 3, No. 1, Year 2014, pp. 21-30.
Agung D. Buchdadi, "Calculation of Value at Risk of Optimum Portfolio of Sharia-Based Company Shares with EWMA Approach", Indonesian Journal of Accounting and Finance, Vol. 5, No. 2, December 2008, pp. 182-183.
In Asih I Maruddam, "Value at Risk Measurement in Single Assets and Portfolios with Monte Carlo Simulation", Journal of Media Statistika, Vol.2, No. 2, December 2009, pp. 93-104
Komang Darmawan, "Estimation of Dynamic VaR Value of Stock Indices Using Peak Over Threshold and Block Maxima", Journal of Mathematics, Vol. 2, No. 2, December 2012, p. 6.
Mahmud M Hanafi, Risk Management, p. 156.
Agung D. Buchadi, "Calculation of Value at Risk of Optimum Portfolio of Sharia-Based Stocks with EWMA Approach", Indonesian Journal of Accounting and Finance, December 2008, Vol. 5, No. 2, pp. 182-201.
Ibnuhardi Faizaini Ihsan, "Measurement of Value At Risk with the Variance Covariance Method", National Seminar on Mathematics Department of Mathematics, Faculty of Mathematics and Natural Sciences (Surakarta: Sebelas Maret University, 2012), p.363-364.
Prof. H. M. Arif Tiro, Ph.D., Introduction to Opportunity Theory (Makassar: Andira Publisher, 2008), pp. 129-131.
Leony P. Tupan, "Measurement of Value at Risk in Company Assets with Monte Carlo SimulationMethod", Journal of Mathematics and Natural Sciences UNSRAT, Vol. 2, No. 1, January 2013, pp. 5-11.
Sharia, Pratiwi, N. 2020. Measurement of Value at Risk (VaR) Optimal Portfolio in Stock Investment of State-Owned Enterprises (SOES) Bank Using The Variance Covariance Method and Monte Carlo Simulation Method. Journal of Industrial and Computational Statistics. Volume 5, No. 1, pp. 1-10.
Irsan, Y. T. M., Priscilla, E., Siswanto. 2022. Comparison of Variance Covariance and Historical Simulation Methods to Calculate Value at Risk on Banking Stock Portfolio. Journal of Mathematics, Statistics, and Computing. Vol. 19, No. 1, September 2022, pp. 241- 250
Irham Fahmi, Risk Management (Bandung: Alfabeta, 2011), p. 169.
Safitri Setyo Utami Sukiyanto, "Determination of Portfolio Value at Risk Optimum Stock LQ45 with EWMA Approach", Thesis Department of Faculty Management Economics and Business (Jakarta: UIN Syarif Hidayatullah, 2011), p. 4.
DOI: https://doi.org/10.47194/orics.v5i2.310
Article Metrics
Abstract view : 121 timesPDF - 63 times
Refbacks
- There are currently no refbacks.
Copyright (c) 2024 Operations Research: International Conference Series
This work is licensed under a Creative Commons Attribution 4.0 International License.
 Published By:Â
Iora Journal
Jl. Merkuri Timur VI No. 1, RT. 007, RW. 004, Manjahlega, Rancasari, Kota Bandung, Jawa Barat, INDONESIAÂ Phone: +62 85841953112; +62 811
ORICS Indexed By:Â
Â
 Â This work is licensed under a Creative Commons Attribution 4.0 International License.
View My Stats