Correlation Between Adi Sarana and United Tractors

Can any of the company-specific risk be diversified away by investing in both Adi Sarana and United Tractors 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 Adi Sarana and United Tractors into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Adi Sarana Armada and United Tractors Tbk, you can compare the effects of market volatilities on Adi Sarana and United Tractors 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 Adi Sarana with a short position of United Tractors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adi Sarana and United Tractors.

Diversification Opportunities for Adi Sarana and United Tractors

-0.01

Correlation Coefficient

Adi Sarana  United Tractors

Good diversification

The 3 months correlation between Adi and United is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Adi Sarana Armada and United Tractors Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Tractors Tbk and Adi Sarana 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 Adi Sarana Armada are associated (or correlated) with United Tractors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Tractors Tbk has no effect on the direction of Adi Sarana i.e., Adi Sarana and United Tractors go up and down completely randomly.

Pair Corralation between Adi Sarana and United Tractors

Assuming the 90 days trading horizon Adi Sarana is expected to generate 2.56 times less return on investment than United Tractors. In addition to that, Adi Sarana is 1.16 times more volatile than United Tractors Tbk. It trades about 0.03 of its total potential returns per unit of risk. United Tractors Tbk is currently generating about 0.08 per unit of volatility. If you would invest  2,601,785  in United Tractors Tbk on September 14, 2024 and sell it today you would earn a total of  183,215  from holding United Tractors Tbk or generate 7.04% return on investment over 90 days.

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

Adi Sarana Armada  vs.  United Tractors Tbk

Adi Sarana Armada

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Adi Sarana Armada are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Adi Sarana is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

United Tractors Tbk

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in United Tractors Tbk are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, United Tractors may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Adi Sarana and United Tractors

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

The idea behind Adi Sarana Armada and United Tractors 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.