Correlation Between Capital Financial and Garuda Metalindo

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

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

Diversification Opportunities for Capital Financial and Garuda Metalindo

0.21

Correlation Coefficient

Capital Financial  Garuda Metalindo

Modest diversification

The 3 months correlation between Capital and Garuda is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Capital Financial Indonesia and Garuda Metalindo Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Garuda Metalindo Tbk and Capital Financial 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 Capital Financial Indonesia are associated (or correlated) with Garuda Metalindo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Garuda Metalindo Tbk has no effect on the direction of Capital Financial i.e., Capital Financial and Garuda Metalindo go up and down completely randomly.

Pair Corralation between Capital Financial and Garuda Metalindo

Assuming the 90 days trading horizon Capital Financial is expected to generate 4.62 times less return on investment than Garuda Metalindo. In addition to that, Capital Financial is 1.47 times more volatile than Garuda Metalindo Tbk. It trades about 0.03 of its total potential returns per unit of risk. Garuda Metalindo Tbk is currently generating about 0.21 per unit of volatility. If you would invest  104,000  in Garuda Metalindo Tbk on September 17, 2024 and sell it today you would earn a total of  26,000  from holding Garuda Metalindo Tbk or generate 25.0% return on investment over 90 days.

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

Capital Financial Indonesia  vs.  Garuda Metalindo Tbk

Capital Financial

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Financial Indonesia are ranked lower than 2 (%) 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.

Garuda Metalindo Tbk

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Garuda Metalindo Tbk are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Garuda Metalindo disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capital Financial and Garuda Metalindo

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

The idea behind Capital Financial Indonesia and Garuda Metalindo 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.

Check out your portfolio center.

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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.