Correlation Between United Tractors and Indah Kiat

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

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

Diversification Opportunities for United Tractors and Indah Kiat

0.56

Correlation Coefficient

United Tractors  Indah Kiat

Very weak diversification

The 3 months correlation between United and Indah is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding United Tractors Tbk 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 United Tractors 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 United Tractors Tbk 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 United Tractors i.e., United Tractors and Indah Kiat go up and down completely randomly.

Pair Corralation between United Tractors and Indah Kiat

Assuming the 90 days trading horizon United Tractors Tbk is expected to under-perform the Indah Kiat. But the stock apears to be less risky and, when comparing its historical volatility, United Tractors Tbk is 1.42 times less risky than Indah Kiat. The stock trades about -0.05 of its potential returns per unit of risk. The Indah Kiat Pulp is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  785,000  in Indah Kiat Pulp on February 9, 2024 and sell it today you would earn a total of  167,500  from holding Indah Kiat Pulp or generate 21.34% return on investment over 90 days.

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

United Tractors Tbk  vs.  Indah Kiat Pulp

United Tractors Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Tractors Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, United Tractors is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

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 weak basic indicators, Indah Kiat disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Tractors and Indah Kiat

The main advantage of trading using opposite United Tractors and Indah Kiat positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Tractors 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 United Tractors Tbk 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.

Check out your portfolio center.

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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.