Correlation Between Cikarang Listrindo and Kapuas Prima

Can any of the company-specific risk be diversified away by investing in both Cikarang Listrindo and Kapuas Prima 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 Cikarang Listrindo and Kapuas Prima into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cikarang Listrindo Tbk and Kapuas Prima Coal, you can compare the effects of market volatilities on Cikarang Listrindo and Kapuas Prima 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 Cikarang Listrindo with a short position of Kapuas Prima. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cikarang Listrindo and Kapuas Prima.

Diversification Opportunities for Cikarang Listrindo and Kapuas Prima

0.34

Correlation Coefficient

Cikarang Listrindo  Kapuas Prima

Weak diversification

The 3 months correlation between Cikarang and Kapuas is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Cikarang Listrindo Tbk and Kapuas Prima Coal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kapuas Prima Coal and Cikarang Listrindo 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 Cikarang Listrindo Tbk are associated (or correlated) with Kapuas Prima. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kapuas Prima Coal has no effect on the direction of Cikarang Listrindo i.e., Cikarang Listrindo and Kapuas Prima go up and down completely randomly.

Pair Corralation between Cikarang Listrindo and Kapuas Prima

Assuming the 90 days trading horizon Cikarang Listrindo is expected to generate 3.37 times less return on investment than Kapuas Prima. But when comparing it to its historical volatility, Cikarang Listrindo Tbk is 4.41 times less risky than Kapuas Prima. It trades about 0.09 of its potential returns per unit of risk. Kapuas Prima Coal is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,600  in Kapuas Prima Coal on September 13, 2024 and sell it today you would earn a total of  200.00  from holding Kapuas Prima Coal or generate 12.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Cikarang Listrindo Tbk  vs.  Kapuas Prima Coal

Cikarang Listrindo Tbk

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cikarang Listrindo Tbk are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Cikarang Listrindo is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Kapuas Prima Coal

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kapuas Prima Coal are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Kapuas Prima disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cikarang Listrindo and Kapuas Prima

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

The idea behind Cikarang Listrindo Tbk and Kapuas Prima Coal 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.