Correlation Between PT Gajah and Sumitomo Rubber

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

By analyzing existing cross correlation between PT Gajah Tunggal and Sumitomo Rubber Industries, you can compare the effects of market volatilities on PT Gajah and Sumitomo Rubber 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 Gajah with a short position of Sumitomo Rubber. Check out your portfolio center. Please also check ongoing floating volatility patterns of PT Gajah and Sumitomo Rubber.

Diversification Opportunities for PT Gajah and Sumitomo Rubber

-0.18

Correlation Coefficient

PT Gajah  Sumitomo Rubber

Good diversification

The 3 months correlation between GH8 and Sumitomo is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding PT Gajah Tunggal and Sumitomo Rubber Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Rubber Indu and PT Gajah 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 Gajah Tunggal are associated (or correlated) with Sumitomo Rubber. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Rubber Indu has no effect on the direction of PT Gajah i.e., PT Gajah and Sumitomo Rubber go up and down completely randomly.

Pair Corralation between PT Gajah and Sumitomo Rubber

Assuming the 90 days horizon PT Gajah Tunggal is expected to generate 1.62 times more return on investment than Sumitomo Rubber. However, PT Gajah is 1.62 times more volatile than Sumitomo Rubber Industries. It trades about 0.06 of its potential returns per unit of risk. Sumitomo Rubber Industries is currently generating about 0.05 per unit of risk. If you would invest  1.90  in PT Gajah Tunggal on September 5, 2024 and sell it today you would earn a total of  3.25  from holding PT Gajah Tunggal or generate 171.05% return on investment over 90 days.

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

PT Gajah Tunggal  vs.  Sumitomo Rubber Industries

PT Gajah Tunggal

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PT Gajah Tunggal are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PT Gajah may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sumitomo Rubber Indu

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Rubber Industries are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sumitomo Rubber reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PT Gajah and Sumitomo Rubber

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

The idea behind PT Gajah Tunggal and Sumitomo Rubber Industries 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.