Correlation Between IDX 30 and Pertamina Geothermal

Can any of the company-specific risk be diversified away by investing in both IDX 30 and Pertamina Geothermal 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 IDX 30 and Pertamina Geothermal into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between IDX 30 Jakarta and Pertamina Geothermal Energy, you can compare the effects of market volatilities on IDX 30 and Pertamina Geothermal 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 IDX 30 with a short position of Pertamina Geothermal. Check out your portfolio center. Please also check ongoing floating volatility patterns of IDX 30 and Pertamina Geothermal.

Diversification Opportunities for IDX 30 and Pertamina Geothermal

0.88

Correlation Coefficient

IDX 30  Pertamina Geothermal

Very poor diversification

The 3 months correlation between IDX and Pertamina is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding IDX 30 Jakarta and Pertamina Geothermal Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pertamina Geothermal and IDX 30 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 IDX 30 Jakarta are associated (or correlated) with Pertamina Geothermal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pertamina Geothermal has no effect on the direction of IDX 30 i.e., IDX 30 and Pertamina Geothermal go up and down completely randomly.

Pair Corralation between IDX 30 and Pertamina Geothermal

Assuming the 90 days trading horizon IDX 30 Jakarta is expected to generate 0.75 times more return on investment than Pertamina Geothermal. However, IDX 30 Jakarta is 1.33 times less risky than Pertamina Geothermal. It trades about -0.15 of its potential returns per unit of risk. Pertamina Geothermal Energy is currently generating about -0.18 per unit of risk. If you would invest  49,344  in IDX 30 Jakarta on September 17, 2024 and sell it today you would lose (5,267) from holding IDX 30 Jakarta or give up 10.67% of portfolio value over 90 days.

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

IDX 30 Jakarta  vs.  Pertamina Geothermal Energy

Pair Trading with IDX 30 and Pertamina Geothermal

The main advantage of trading using opposite IDX 30 and Pertamina Geothermal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IDX 30 position performs unexpectedly, Pertamina Geothermal 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 Pertamina Geothermal will offset losses from the drop in Pertamina Geothermal's long position.

The idea behind IDX 30 Jakarta and Pertamina Geothermal Energy 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.