Correlation Between Elang Mahkota and Indo Tambangraya

Can any of the company-specific risk be diversified away by investing in both Elang Mahkota and Indo Tambangraya 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 Elang Mahkota and Indo Tambangraya into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Elang Mahkota Teknologi and Indo Tambangraya Megah, you can compare the effects of market volatilities on Elang Mahkota and Indo Tambangraya 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 Elang Mahkota with a short position of Indo Tambangraya. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elang Mahkota and Indo Tambangraya.

Diversification Opportunities for Elang Mahkota and Indo Tambangraya

0.36

Correlation Coefficient

Elang Mahkota  Indo Tambangraya

Weak diversification

The 3 months correlation between Elang and Indo is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Elang Mahkota Teknologi and Indo Tambangraya Megah in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indo Tambangraya Megah and Elang Mahkota 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 Elang Mahkota Teknologi are associated (or correlated) with Indo Tambangraya. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indo Tambangraya Megah has no effect on the direction of Elang Mahkota i.e., Elang Mahkota and Indo Tambangraya go up and down completely randomly.

Pair Corralation between Elang Mahkota and Indo Tambangraya

Assuming the 90 days trading horizon Elang Mahkota Teknologi is expected to under-perform the Indo Tambangraya. In addition to that, Elang Mahkota is 1.62 times more volatile than Indo Tambangraya Megah. It trades about -0.02 of its total potential returns per unit of risk. Indo Tambangraya Megah is currently generating about 0.01 per unit of volatility. If you would invest  2,819,488  in Indo Tambangraya Megah on September 12, 2024 and sell it today you would lose (31,988) from holding Indo Tambangraya Megah or give up 1.13% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

Elang Mahkota Teknologi  vs.  Indo Tambangraya Megah

Elang Mahkota Teknologi

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Elang Mahkota Teknologi are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Elang Mahkota disclosed solid returns over the last few months and may actually be approaching a breakup point.

Indo Tambangraya Megah

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Indo Tambangraya Megah are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Indo Tambangraya 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 Elang Mahkota and Indo Tambangraya

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

The idea behind Elang Mahkota Teknologi and Indo Tambangraya Megah 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.