Correlation Between Indonesian Tobacco and Tera Data

Can any of the company-specific risk be diversified away by investing in both Indonesian Tobacco and Tera Data 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 Indonesian Tobacco and Tera Data into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Indonesian Tobacco Tbk and Tera Data Indonusa, you can compare the effects of market volatilities on Indonesian Tobacco and Tera Data 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 Indonesian Tobacco with a short position of Tera Data. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indonesian Tobacco and Tera Data.

Diversification Opportunities for Indonesian Tobacco and Tera Data

-0.49

Correlation Coefficient

Indonesian Tobacco  Tera Data

Very good diversification

The 3 months correlation between Indonesian and Tera is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Indonesian Tobacco Tbk and Tera Data Indonusa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tera Data Indonusa and Indonesian Tobacco 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 Indonesian Tobacco Tbk are associated (or correlated) with Tera Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tera Data Indonusa has no effect on the direction of Indonesian Tobacco i.e., Indonesian Tobacco and Tera Data go up and down completely randomly.

Pair Corralation between Indonesian Tobacco and Tera Data

Assuming the 90 days trading horizon Indonesian Tobacco is expected to generate 14.64 times less return on investment than Tera Data. But when comparing it to its historical volatility, Indonesian Tobacco Tbk is 1.31 times less risky than Tera Data. It trades about 0.02 of its potential returns per unit of risk. Tera Data Indonusa is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  11,332  in Tera Data Indonusa on September 13, 2024 and sell it today you would earn a total of  2,668  from holding Tera Data Indonusa or generate 23.54% return on investment over 90 days.

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

Indonesian Tobacco Tbk  vs.  Tera Data Indonusa

Indonesian Tobacco Tbk

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Indonesian Tobacco Tbk are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Indonesian Tobacco is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Tera Data Indonusa

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tera Data Indonusa are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Tera Data disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Indonesian Tobacco and Tera Data

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

The idea behind Indonesian Tobacco Tbk and Tera Data Indonusa 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.