Correlation Between Champion Pacific and Vale Indonesia

Can any of the company-specific risk be diversified away by investing in both Champion Pacific and Vale Indonesia 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 Champion Pacific and Vale Indonesia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Champion Pacific Indonesia and Vale Indonesia Tbk, you can compare the effects of market volatilities on Champion Pacific and Vale Indonesia 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 Champion Pacific with a short position of Vale Indonesia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Champion Pacific and Vale Indonesia.

Diversification Opportunities for Champion Pacific and Vale Indonesia

-0.37

Correlation Coefficient

Champion Pacific  Vale Indonesia

Very good diversification

The 3 months correlation between Champion and Vale is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Champion Pacific Indonesia and Vale Indonesia Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale Indonesia Tbk and Champion Pacific 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 Champion Pacific Indonesia are associated (or correlated) with Vale Indonesia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale Indonesia Tbk has no effect on the direction of Champion Pacific i.e., Champion Pacific and Vale Indonesia go up and down completely randomly.

Pair Corralation between Champion Pacific and Vale Indonesia

Assuming the 90 days trading horizon Champion Pacific is expected to generate 2.3 times less return on investment than Vale Indonesia. But when comparing it to its historical volatility, Champion Pacific Indonesia is 1.25 times less risky than Vale Indonesia. It trades about 0.03 of its potential returns per unit of risk. Vale Indonesia Tbk is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  372,000  in Vale Indonesia Tbk on September 15, 2024 and sell it today you would earn a total of  23,000  from holding Vale Indonesia Tbk or generate 6.18% return on investment over 90 days.

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

Champion Pacific Indonesia  vs.  Vale Indonesia Tbk

Champion Pacific Ind

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Champion Pacific Indonesia are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Champion Pacific is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Vale Indonesia Tbk

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vale Indonesia Tbk are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Vale Indonesia may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Champion Pacific and Vale Indonesia

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

The idea behind Champion Pacific Indonesia and Vale Indonesia Tbk 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.