Correlation Between Adaro Minerals and RMK Energy

Can any of the company-specific risk be diversified away by investing in both Adaro Minerals and RMK Energy 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 RMK Energy 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 RMK Energy PT, you can compare the effects of market volatilities on Adaro Minerals and RMK Energy 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 RMK Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adaro Minerals and RMK Energy.

Diversification Opportunities for Adaro Minerals and RMK Energy

0.41

Correlation Coefficient

Adaro Minerals  RMK Energy

Very weak diversification

The 3 months correlation between Adaro and RMK is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Adaro Minerals Indonesia and RMK Energy PT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RMK Energy PT 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 RMK Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RMK Energy PT has no effect on the direction of Adaro Minerals i.e., Adaro Minerals and RMK Energy go up and down completely randomly.

Pair Corralation between Adaro Minerals and RMK Energy

Assuming the 90 days trading horizon Adaro Minerals Indonesia is expected to generate 1.18 times more return on investment than RMK Energy. However, Adaro Minerals is 1.18 times more volatile than RMK Energy PT. It trades about -0.04 of its potential returns per unit of risk. RMK Energy PT is currently generating about -0.08 per unit of risk. If you would invest  133,500  in Adaro Minerals Indonesia on September 16, 2024 and sell it today you would lose (9,500) from holding Adaro Minerals Indonesia or give up 7.12% of portfolio value over 90 days.

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

Adaro Minerals Indonesia  vs.  RMK Energy PT

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 quite persistent forward-looking signals, Adaro Minerals is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

RMK Energy PT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RMK Energy PT 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 RMK Energy

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

The idea behind Adaro Minerals Indonesia and RMK Energy PT 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.