Correlation Between Krakatau Steel and Indofood Cbp

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

By analyzing existing cross correlation between Krakatau Steel Persero and Indofood Cbp Sukses, you can compare the effects of market volatilities on Krakatau Steel and Indofood Cbp 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 Krakatau Steel with a short position of Indofood Cbp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Krakatau Steel and Indofood Cbp.

Diversification Opportunities for Krakatau Steel and Indofood Cbp

0.6

Correlation Coefficient

Krakatau Steel  Indofood Cbp

Poor diversification

The 3 months correlation between Krakatau and Indofood is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Krakatau Steel Persero and Indofood Cbp Sukses in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indofood Cbp Sukses and Krakatau Steel 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 Krakatau Steel Persero are associated (or correlated) with Indofood Cbp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indofood Cbp Sukses has no effect on the direction of Krakatau Steel i.e., Krakatau Steel and Indofood Cbp go up and down completely randomly.

Pair Corralation between Krakatau Steel and Indofood Cbp

Assuming the 90 days trading horizon Krakatau Steel Persero is expected to under-perform the Indofood Cbp. In addition to that, Krakatau Steel is 3.01 times more volatile than Indofood Cbp Sukses. It trades about 0.0 of its total potential returns per unit of risk. Indofood Cbp Sukses is currently generating about 0.03 per unit of volatility. If you would invest  1,165,000  in Indofood Cbp Sukses on September 5, 2024 and sell it today you would earn a total of  25,000  from holding Indofood Cbp Sukses or generate 2.15% return on investment over 90 days.

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

Krakatau Steel Persero  vs.  Indofood Cbp Sukses

Krakatau Steel Persero

Risk-Adjusted Performance

0 of 100

Very Weak

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

Indofood Cbp Sukses

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Indofood Cbp Sukses are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Indofood Cbp is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Krakatau Steel and Indofood Cbp

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

The idea behind Krakatau Steel Persero and Indofood Cbp Sukses 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.