Correlation Between Krakatau Steel and Steel Pipe

Can any of the company-specific risk be diversified away by investing in both Krakatau Steel and Steel Pipe 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 Steel Pipe 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 Steel Pipe Industry, you can compare the effects of market volatilities on Krakatau Steel and Steel Pipe 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 Steel Pipe. Check out your portfolio center. Please also check ongoing floating volatility patterns of Krakatau Steel and Steel Pipe.

Diversification Opportunities for Krakatau Steel and Steel Pipe

0.73

Correlation Coefficient

Krakatau Steel  Steel Pipe

Poor diversification

The 3 months correlation between Krakatau and Steel is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Krakatau Steel Persero and Steel Pipe Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Pipe Industry 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 Steel Pipe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steel Pipe Industry has no effect on the direction of Krakatau Steel i.e., Krakatau Steel and Steel Pipe go up and down completely randomly.

Pair Corralation between Krakatau Steel and Steel Pipe

Assuming the 90 days trading horizon Krakatau Steel Persero is expected to generate 4.24 times more return on investment than Steel Pipe. However, Krakatau Steel is 4.24 times more volatile than Steel Pipe Industry. It trades about 0.0 of its potential returns per unit of risk. Steel Pipe Industry is currently generating about -0.05 per unit of risk. If you would invest  12,600  in Krakatau Steel Persero on September 17, 2024 and sell it today you would lose (700.00) from holding Krakatau Steel Persero or give up 5.56% of portfolio value over 90 days.

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

Krakatau Steel Persero  vs.  Steel Pipe Industry

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.

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.

Pair Trading with Krakatau Steel and Steel Pipe

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

The idea behind Krakatau Steel Persero and Steel Pipe Industry 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.