Correlation Between Alumindo Light and PT Charlie

Can any of the company-specific risk be diversified away by investing in both Alumindo Light and PT Charlie 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 Alumindo Light and PT Charlie into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alumindo Light Metal and PT Charlie Hospital, you can compare the effects of market volatilities on Alumindo Light and PT Charlie 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 Alumindo Light with a short position of PT Charlie. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alumindo Light and PT Charlie.

Diversification Opportunities for Alumindo Light and PT Charlie

-0.33

Correlation Coefficient

Alumindo Light  PT Charlie

Very good diversification

The 3 months correlation between Alumindo and RSCH is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Alumindo Light Metal and PT Charlie Hospital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Charlie Hospital and Alumindo Light 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 Alumindo Light Metal are associated (or correlated) with PT Charlie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Charlie Hospital has no effect on the direction of Alumindo Light i.e., Alumindo Light and PT Charlie go up and down completely randomly.

Pair Corralation between Alumindo Light and PT Charlie

Assuming the 90 days trading horizon Alumindo Light Metal is expected to generate 1.22 times more return on investment than PT Charlie. However, Alumindo Light is 1.22 times more volatile than PT Charlie Hospital. It trades about 0.01 of its potential returns per unit of risk. PT Charlie Hospital is currently generating about 0.01 per unit of risk. If you would invest  7,500  in Alumindo Light Metal on September 17, 2024 and sell it today you would lose (100.00) from holding Alumindo Light Metal or give up 1.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Alumindo Light Metal  vs.  PT Charlie Hospital

Alumindo Light Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alumindo Light Metal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Alumindo Light is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

PT Charlie Hospital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PT Charlie Hospital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, PT Charlie 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 Alumindo Light and PT Charlie

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

The idea behind Alumindo Light Metal and PT Charlie Hospital 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.