Correlation Between Steel Pipe and PT Indonesia

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

By analyzing existing cross correlation between Steel Pipe Industry and PT Indonesia Kendaraan, you can compare the effects of market volatilities on Steel Pipe and PT 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 Steel Pipe with a short position of PT Indonesia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Pipe and PT Indonesia.

Diversification Opportunities for Steel Pipe and PT Indonesia

-0.86

Correlation Coefficient

Steel Pipe  PT Indonesia

Pay attention - limited upside

The 3 months correlation between Steel and IPCC is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Steel Pipe Industry and PT Indonesia Kendaraan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Indonesia Kendaraan and Steel Pipe 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 Steel Pipe Industry are associated (or correlated) with PT Indonesia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Indonesia Kendaraan has no effect on the direction of Steel Pipe i.e., Steel Pipe and PT Indonesia go up and down completely randomly.

Pair Corralation between Steel Pipe and PT Indonesia

Assuming the 90 days trading horizon Steel Pipe Industry is expected to under-perform the PT Indonesia. But the stock apears to be less risky and, when comparing its historical volatility, Steel Pipe Industry is 1.36 times less risky than PT Indonesia. The stock trades about -0.05 of its potential returns per unit of risk. The PT Indonesia Kendaraan is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  65,226  in PT Indonesia Kendaraan on September 16, 2024 and sell it today you would earn a total of  6,274  from holding PT Indonesia Kendaraan or generate 9.62% return on investment over 90 days.

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

Steel Pipe Industry  vs.  PT Indonesia Kendaraan

Steel Pipe Industry

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Steel Pipe Industry has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Steel Pipe is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

PT Indonesia Kendaraan

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PT Indonesia Kendaraan are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite weak forward-looking signals, PT Indonesia may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Steel Pipe and PT Indonesia

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

The idea behind Steel Pipe Industry and PT Indonesia Kendaraan 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.