Correlation Between Adaro Minerals and Archi Indonesia

Can any of the company-specific risk be diversified away by investing in both Adaro Minerals and Archi Indonesia 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 Adaro Minerals and Archi Indonesia into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Adaro Minerals and Archi Indonesia

0.81

Correlation Coefficient

Adaro Minerals  Archi Indonesia

Very poor diversification

The 3 months correlation between Adaro and Archi is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Adaro Minerals Indonesia and Archi Indonesia Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Archi Indonesia Tbk and Adaro Minerals 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 Adaro Minerals Indonesia are associated (or correlated) with Archi Indonesia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Archi Indonesia Tbk has no effect on the direction of Adaro Minerals i.e., Adaro Minerals and Archi Indonesia go up and down completely randomly.

Pair Corralation between Adaro Minerals and Archi Indonesia

Assuming the 90 days trading horizon Adaro Minerals Indonesia is expected to under-perform the Archi Indonesia. In addition to that, Adaro Minerals is 1.16 times more volatile than Archi Indonesia Tbk. It trades about -0.09 of its total potential returns per unit of risk. Archi Indonesia Tbk is currently generating about -0.06 per unit of volatility. If you would invest  28,400  in Archi Indonesia Tbk on September 19, 2024 and sell it today you would lose (2,600) from holding Archi Indonesia Tbk or give up 9.15% of portfolio value over 90 days.

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

Adaro Minerals Indonesia  vs.  Archi Indonesia Tbk

Adaro Minerals Indonesia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adaro Minerals Indonesia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Archi Indonesia Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Archi Indonesia Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Adaro Minerals and Archi Indonesia

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

The idea behind Adaro Minerals Indonesia and Archi Indonesia Tbk 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.