Correlation Between Indika Energy and Weha Transportasi

Can any of the company-specific risk be diversified away by investing in both Indika Energy and Weha Transportasi 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 Indika Energy and Weha Transportasi into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Indika Energy and Weha Transportasi

0.85

Correlation Coefficient

Indika Energy  Weha Transportasi

Very poor diversification

The 3 months correlation between Indika and Weha is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Indika Energy Tbk and Weha Transportasi Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Weha Transportasi and Indika Energy 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 Indika Energy Tbk are associated (or correlated) with Weha Transportasi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Weha Transportasi has no effect on the direction of Indika Energy i.e., Indika Energy and Weha Transportasi go up and down completely randomly.

Pair Corralation between Indika Energy and Weha Transportasi

Assuming the 90 days trading horizon Indika Energy Tbk is expected to generate 1.35 times more return on investment than Weha Transportasi. However, Indika Energy is 1.35 times more volatile than Weha Transportasi Indonesia. It trades about -0.1 of its potential returns per unit of risk. Weha Transportasi Indonesia is currently generating about -0.25 per unit of risk. If you would invest  171,000  in Indika Energy Tbk on September 29, 2024 and sell it today you would lose (27,000) from holding Indika Energy Tbk or give up 15.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Indika Energy Tbk  vs.  Weha Transportasi Indonesia

Indika Energy Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indika Energy Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Weha Transportasi

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Weha Transportasi Indonesia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Indika Energy and Weha Transportasi

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

The idea behind Indika Energy Tbk and Weha Transportasi Indonesia 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.

Check out your portfolio center.

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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..