Correlation Between Gihon Telekomunikasi and Indah Prakasa

Can any of the company-specific risk be diversified away by investing in both Gihon Telekomunikasi and Indah Prakasa 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 Gihon Telekomunikasi and Indah Prakasa into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Gihon Telekomunikasi Indonesia and Indah Prakasa Sentosa, you can compare the effects of market volatilities on Gihon Telekomunikasi and Indah Prakasa 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 Gihon Telekomunikasi with a short position of Indah Prakasa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gihon Telekomunikasi and Indah Prakasa.

Diversification Opportunities for Gihon Telekomunikasi and Indah Prakasa

-0.61

Correlation Coefficient

Gihon Telekomunikasi  Indah Prakasa

Excellent diversification

The 3 months correlation between Gihon and Indah is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Gihon Telekomunikasi Indonesia and Indah Prakasa Sentosa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indah Prakasa Sentosa and Gihon Telekomunikasi 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 Gihon Telekomunikasi Indonesia are associated (or correlated) with Indah Prakasa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indah Prakasa Sentosa has no effect on the direction of Gihon Telekomunikasi i.e., Gihon Telekomunikasi and Indah Prakasa go up and down completely randomly.

Pair Corralation between Gihon Telekomunikasi and Indah Prakasa

Assuming the 90 days trading horizon Gihon Telekomunikasi Indonesia is expected to under-perform the Indah Prakasa. But the stock apears to be less risky and, when comparing its historical volatility, Gihon Telekomunikasi Indonesia is 6.62 times less risky than Indah Prakasa. The stock trades about -0.04 of its potential returns per unit of risk. The Indah Prakasa Sentosa is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  12,000  in Indah Prakasa Sentosa on September 15, 2024 and sell it today you would earn a total of  4,200  from holding Indah Prakasa Sentosa or generate 35.0% return on investment over 90 days.

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

Gihon Telekomunikasi Indonesia  vs.  Indah Prakasa Sentosa

Gihon Telekomunikasi

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gihon Telekomunikasi Indonesia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Gihon Telekomunikasi is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Indah Prakasa Sentosa

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Indah Prakasa Sentosa are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Indah Prakasa disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gihon Telekomunikasi and Indah Prakasa

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

The idea behind Gihon Telekomunikasi Indonesia and Indah Prakasa Sentosa 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.