Correlation Between IDX 30 and Nippon Indosari

Can any of the company-specific risk be diversified away by investing in both IDX 30 and Nippon Indosari 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 Nippon Indosari 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 Nippon Indosari Corpindo, you can compare the effects of market volatilities on IDX 30 and Nippon Indosari 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 Nippon Indosari. Check out your portfolio center. Please also check ongoing floating volatility patterns of IDX 30 and Nippon Indosari.

Diversification Opportunities for IDX 30 and Nippon Indosari

0.8

Correlation Coefficient

IDX 30  Nippon Indosari

Very poor diversification

The 3 months correlation between IDX and Nippon is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding IDX 30 Jakarta and Nippon Indosari Corpindo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Indosari Corpindo 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 Nippon Indosari. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nippon Indosari Corpindo has no effect on the direction of IDX 30 i.e., IDX 30 and Nippon Indosari go up and down completely randomly.

Pair Corralation between IDX 30 and Nippon Indosari

Assuming the 90 days trading horizon IDX 30 Jakarta is expected to under-perform the Nippon Indosari. In addition to that, IDX 30 is 3.26 times more volatile than Nippon Indosari Corpindo. It trades about -0.09 of its total potential returns per unit of risk. Nippon Indosari Corpindo is currently generating about 0.16 per unit of volatility. If you would invest  97,500  in Nippon Indosari Corpindo on September 18, 2024 and sell it today you would earn a total of  1,500  from holding Nippon Indosari Corpindo or generate 1.54% return on investment over 90 days.

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

IDX 30 Jakarta  vs.  Nippon Indosari Corpindo

Pair Trading with IDX 30 and Nippon Indosari

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

The idea behind IDX 30 Jakarta and Nippon Indosari Corpindo 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.