Correlation Between Kalbe Farma and Unilever Indonesia

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

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

Diversification Opportunities for Kalbe Farma and Unilever Indonesia

0.87

Correlation Coefficient

Kalbe Farma  Unilever Indonesia

Very poor diversification

The 3 months correlation between Kalbe and Unilever is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Kalbe Farma Tbk and Unilever Indonesia Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unilever Indonesia Tbk and Kalbe Farma 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 Kalbe Farma Tbk are associated (or correlated) with Unilever Indonesia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unilever Indonesia Tbk has no effect on the direction of Kalbe Farma i.e., Kalbe Farma and Unilever Indonesia go up and down completely randomly.

Pair Corralation between Kalbe Farma and Unilever Indonesia

Assuming the 90 days trading horizon Kalbe Farma Tbk is expected to under-perform the Unilever Indonesia. But the stock apears to be less risky and, when comparing its historical volatility, Kalbe Farma Tbk is 1.69 times less risky than Unilever Indonesia. The stock trades about -0.15 of its potential returns per unit of risk. The Unilever Indonesia Tbk is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  217,235  in Unilever Indonesia Tbk on September 12, 2024 and sell it today you would lose (22,735) from holding Unilever Indonesia Tbk or give up 10.47% of portfolio value over 90 days.

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

Kalbe Farma Tbk  vs.  Unilever Indonesia Tbk

Kalbe Farma Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kalbe Farma 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.

Unilever Indonesia Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Unilever Indonesia Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Kalbe Farma and Unilever Indonesia

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

The idea behind Kalbe Farma Tbk and Unilever Indonesia Tbk 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.