Correlation Between PT Chemstar and Adaro Minerals

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

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

Diversification Opportunities for PT Chemstar and Adaro Minerals

0.26

Correlation Coefficient

PT Chemstar  Adaro Minerals

Modest diversification

The 3 months correlation between CHEM and Adaro is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding PT Chemstar Indonesia and Adaro Minerals Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adaro Minerals Indonesia and PT Chemstar 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 PT Chemstar Indonesia are associated (or correlated) with Adaro Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adaro Minerals Indonesia has no effect on the direction of PT Chemstar i.e., PT Chemstar and Adaro Minerals go up and down completely randomly.

Pair Corralation between PT Chemstar and Adaro Minerals

Assuming the 90 days trading horizon PT Chemstar Indonesia is expected to under-perform the Adaro Minerals. But the stock apears to be less risky and, when comparing its historical volatility, PT Chemstar Indonesia is 1.27 times less risky than Adaro Minerals. The stock trades about -0.12 of its potential returns per unit of risk. The Adaro Minerals Indonesia is currently generating about -0.04 of returns per unit of risk over similar time horizon. 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	Very Weak
Accuracy	100.0%
Values	Daily Returns

PT Chemstar Indonesia  vs.  Adaro Minerals Indonesia

PT Chemstar Indonesia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PT Chemstar 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.

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.

Pair Trading with PT Chemstar and Adaro Minerals

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

The idea behind PT Chemstar Indonesia and Adaro Minerals Indonesia 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.