Correlation Between Pabrik Kertas and Indah Kiat

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

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

Diversification Opportunities for Pabrik Kertas and Indah Kiat

0.89

Correlation Coefficient

Pabrik Kertas  Indah Kiat

Very poor diversification

The 3 months correlation between Pabrik and Indah is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Pabrik Kertas Tjiwi and Indah Kiat Pulp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indah Kiat Pulp and Pabrik Kertas 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 Pabrik Kertas Tjiwi are associated (or correlated) with Indah Kiat. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indah Kiat Pulp has no effect on the direction of Pabrik Kertas i.e., Pabrik Kertas and Indah Kiat go up and down completely randomly.

Pair Corralation between Pabrik Kertas and Indah Kiat

Assuming the 90 days trading horizon Pabrik Kertas Tjiwi is expected to generate 1.15 times more return on investment than Indah Kiat. However, Pabrik Kertas is 1.15 times more volatile than Indah Kiat Pulp. It trades about 0.25 of its potential returns per unit of risk. Indah Kiat Pulp is currently generating about -0.04 per unit of risk. If you would invest  732,500  in Pabrik Kertas Tjiwi on February 10, 2024 and sell it today you would earn a total of  90,000  from holding Pabrik Kertas Tjiwi or generate 12.29% return on investment over 90 days.

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

Pabrik Kertas Tjiwi  vs.  Indah Kiat Pulp

Pabrik Kertas Tjiwi

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pabrik Kertas Tjiwi are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Pabrik Kertas disclosed solid returns over the last few months and may actually be approaching a breakup point.

Indah Kiat Pulp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Indah Kiat Pulp are ranked lower than 12 (%) 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.

Pair Trading with Pabrik Kertas and Indah Kiat

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

The idea behind Pabrik Kertas Tjiwi and Indah Kiat Pulp 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.