Correlation Between Indo Tambangraya and Natural Resource

Can any of the company-specific risk be diversified away by investing in both Indo Tambangraya and Natural Resource 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 Indo Tambangraya and Natural Resource into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Indo Tambangraya Megah and Natural Resource Partners, you can compare the effects of market volatilities on Indo Tambangraya and Natural Resource 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 Indo Tambangraya with a short position of Natural Resource. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indo Tambangraya and Natural Resource.

Diversification Opportunities for Indo Tambangraya and Natural Resource

-0.61

Correlation Coefficient

Indo Tambangraya  Natural Resource

Excellent diversification

The 3 months correlation between Indo and Natural is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Indo Tambangraya Megah and Natural Resource Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Resource Partners and Indo Tambangraya 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 Indo Tambangraya Megah are associated (or correlated) with Natural Resource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Resource Partners has no effect on the direction of Indo Tambangraya i.e., Indo Tambangraya and Natural Resource go up and down completely randomly.

Pair Corralation between Indo Tambangraya and Natural Resource

Assuming the 90 days horizon Indo Tambangraya is expected to generate 7.42 times less return on investment than Natural Resource. In addition to that, Indo Tambangraya is 1.49 times more volatile than Natural Resource Partners. It trades about 0.01 of its total potential returns per unit of risk. Natural Resource Partners is currently generating about 0.07 per unit of volatility. If you would invest  8,043  in Natural Resource Partners on September 13, 2024 and sell it today you would earn a total of  2,711  from holding Natural Resource Partners or generate 33.71% return on investment over 90 days.

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

Indo Tambangraya Megah  vs.  Natural Resource Partners

Indo Tambangraya Megah

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indo Tambangraya Megah has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Natural Resource Partners

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Natural Resource Partners are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Natural Resource reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Indo Tambangraya and Natural Resource

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

The idea behind Indo Tambangraya Megah and Natural Resource Partners 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.