Correlation Between Indah Kiat and PT Utama

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

By analyzing existing cross correlation between Indah Kiat Pulp and PT Utama Radar, you can compare the effects of market volatilities on Indah Kiat and PT Utama 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 Indah Kiat with a short position of PT Utama. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indah Kiat and PT Utama.

Diversification Opportunities for Indah Kiat and PT Utama

-0.39

Correlation Coefficient

Indah Kiat  PT Utama

Very good diversification

The 3 months correlation between Indah and RCCC is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Indah Kiat Pulp and PT Utama Radar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Utama Radar and Indah Kiat 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 Indah Kiat Pulp are associated (or correlated) with PT Utama. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Utama Radar has no effect on the direction of Indah Kiat i.e., Indah Kiat and PT Utama go up and down completely randomly.

Pair Corralation between Indah Kiat and PT Utama

Assuming the 90 days trading horizon Indah Kiat Pulp is expected to under-perform the PT Utama. But the stock apears to be less risky and, when comparing its historical volatility, Indah Kiat Pulp is 3.04 times less risky than PT Utama. The stock trades about -0.15 of its potential returns per unit of risk. The PT Utama Radar is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  25,200  in PT Utama Radar on September 16, 2024 and sell it today you would earn a total of  6,400  from holding PT Utama Radar or generate 25.4% return on investment over 90 days.

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

Indah Kiat Pulp  vs.  PT Utama Radar

Indah Kiat Pulp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indah Kiat Pulp 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.

PT Utama Radar

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days PT Utama Radar has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite weak forward-looking signals, PT Utama disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Indah Kiat and PT Utama

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

The idea behind Indah Kiat Pulp and PT Utama Radar 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.