Can any of the company-specific risk be diversified away by investing in both Amazon and PT Kalbe 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 Amazon and PT Kalbe into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and PT Kalbe Farma, you can compare the effects of market volatilities on Amazon and PT Kalbe 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 Amazon with a short position of PT Kalbe. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and PT Kalbe.
Diversification Opportunities for Amazon and PT Kalbe
The 3 months correlation between Amazon and PTKFF is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and PT Kalbe Farma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Kalbe Farma and Amazon 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 Amazon Inc are associated (or correlated) with PT Kalbe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Kalbe Farma has no effect on the direction of Amazon i.e., Amazon and PT Kalbe go up and down completely randomly.
Given the investment horizon of 90 days Amazon Inc is expected to generate 1.05 times more return on investment than PT Kalbe. However, Amazon is 1.05 times more volatile than PT Kalbe Farma. It trades about 0.04 of its potential returns per unit of risk. PT Kalbe Farma is currently generating about -0.08 per unit of risk. If you would invest 17,351 in Amazon Inc on March 6, 2024 and sell it today you would earn a total of 483.00 from holding Amazon Inc or generate 2.78% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Amazon is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
Over the last 90 days PT Kalbe Farma has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.