Correlation Between Indo Straits and Trans Power

Can any of the company-specific risk be diversified away by investing in both Indo Straits and Trans Power 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 Indo Straits and Trans Power into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Indo Straits Tbk and Trans Power Marine, you can compare the effects of market volatilities on Indo Straits and Trans Power 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 Indo Straits with a short position of Trans Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indo Straits and Trans Power.

Diversification Opportunities for Indo Straits and Trans Power

0.41

Correlation Coefficient

Indo Straits  Trans Power

Very weak diversification

The 3 months correlation between Indo and Trans is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Indo Straits Tbk and Trans Power Marine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trans Power Marine and Indo Straits 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 Indo Straits Tbk are associated (or correlated) with Trans Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trans Power Marine has no effect on the direction of Indo Straits i.e., Indo Straits and Trans Power go up and down completely randomly.

Pair Corralation between Indo Straits and Trans Power

Assuming the 90 days trading horizon Indo Straits Tbk is expected to generate 3.2 times more return on investment than Trans Power. However, Indo Straits is 3.2 times more volatile than Trans Power Marine. It trades about 0.05 of its potential returns per unit of risk. Trans Power Marine is currently generating about -0.05 per unit of risk. If you would invest  22,000  in Indo Straits Tbk on September 17, 2024 and sell it today you would earn a total of  1,400  from holding Indo Straits Tbk or generate 6.36% return on investment over 90 days.

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

Indo Straits Tbk  vs.  Trans Power Marine

Indo Straits Tbk

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Indo Straits Tbk are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Indo Straits disclosed solid returns over the last few months and may actually be approaching a breakup point.

Trans Power Marine

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Trans Power Marine 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 Indo Straits and Trans Power

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

The idea behind Indo Straits Tbk and Trans Power Marine 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.