Correlation Between Ace Hardware and Capital Financial

Can any of the company-specific risk be diversified away by investing in both Ace Hardware and Capital Financial 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 Ace Hardware and Capital Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ace Hardware Indonesia and Capital Financial Indonesia, you can compare the effects of market volatilities on Ace Hardware and Capital Financial 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 Ace Hardware with a short position of Capital Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ace Hardware and Capital Financial.

Diversification Opportunities for Ace Hardware and Capital Financial

0.05

Correlation Coefficient

Ace Hardware  Capital Financial

Significant diversification

The 3 months correlation between Ace and Capital is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Ace Hardware Indonesia and Capital Financial Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Financial and Ace Hardware 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 Ace Hardware Indonesia are associated (or correlated) with Capital Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Financial has no effect on the direction of Ace Hardware i.e., Ace Hardware and Capital Financial go up and down completely randomly.

Pair Corralation between Ace Hardware and Capital Financial

Assuming the 90 days trading horizon Ace Hardware Indonesia is expected to generate 0.97 times more return on investment than Capital Financial. However, Ace Hardware Indonesia is 1.03 times less risky than Capital Financial. It trades about 0.06 of its potential returns per unit of risk. Capital Financial Indonesia is currently generating about 0.02 per unit of risk. If you would invest  71,500  in Ace Hardware Indonesia on August 31, 2024 and sell it today you would earn a total of  5,500  from holding Ace Hardware Indonesia or generate 7.69% return on investment over 90 days.

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

Ace Hardware Indonesia  vs.  Capital Financial Indonesia

Ace Hardware Indonesia

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ace Hardware Indonesia are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Ace Hardware may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Capital Financial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Financial Indonesia are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Capital Financial 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 Ace Hardware and Capital Financial

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

The idea behind Ace Hardware Indonesia and Capital Financial 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 Transaction History module to view history of all your transactions and understand their impact on performance.