Correlation Between Indah Kiat and Bank Danamon

Can any of the company-specific risk be diversified away by investing in both Indah Kiat and Bank Danamon 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 Indah Kiat and Bank Danamon into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Indah Kiat Pulp and Bank Danamon Indonesia, you can compare the effects of market volatilities on Indah Kiat and Bank Danamon 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 Indah Kiat with a short position of Bank Danamon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indah Kiat and Bank Danamon.

Diversification Opportunities for Indah Kiat and Bank Danamon

0.6

Correlation Coefficient

Indah Kiat  Bank Danamon

Poor diversification

The 3 months correlation between Indah and Bank is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Indah Kiat Pulp and Bank Danamon Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Danamon Indonesia and Indah Kiat 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 Indah Kiat Pulp are associated (or correlated) with Bank Danamon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Danamon Indonesia has no effect on the direction of Indah Kiat i.e., Indah Kiat and Bank Danamon go up and down completely randomly.

Pair Corralation between Indah Kiat and Bank Danamon

Assuming the 90 days trading horizon Indah Kiat Pulp is expected to generate 1.97 times more return on investment than Bank Danamon. However, Indah Kiat is 1.97 times more volatile than Bank Danamon Indonesia. It trades about -0.13 of its potential returns per unit of risk. Bank Danamon Indonesia is currently generating about -0.34 per unit of risk. If you would invest  957,500  in Indah Kiat Pulp on January 28, 2024 and sell it today you would lose (42,500) from holding Indah Kiat Pulp or give up 4.44% of portfolio value over 90 days.

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

Indah Kiat Pulp  vs.  Bank Danamon Indonesia

Indah Kiat Pulp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Indah Kiat Pulp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Indah Kiat disclosed solid returns over the last few months and may actually be approaching a breakup point.

Bank Danamon Indonesia

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bank Danamon Indonesia are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Bank Danamon 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 Indah Kiat and Bank Danamon

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

The idea behind Indah Kiat Pulp and Bank Danamon Indonesia 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.