Correlation Between Tunas Baru and Gozco Plantations

Can any of the company-specific risk be diversified away by investing in both Tunas Baru and Gozco Plantations 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 Tunas Baru and Gozco Plantations into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tunas Baru Lampung and Gozco Plantations Tbk, you can compare the effects of market volatilities on Tunas Baru and Gozco Plantations 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 Tunas Baru with a short position of Gozco Plantations. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tunas Baru and Gozco Plantations.

Diversification Opportunities for Tunas Baru and Gozco Plantations

0.69

Correlation Coefficient

Tunas Baru  Gozco Plantations

Poor diversification

The 3 months correlation between Tunas and Gozco is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Tunas Baru Lampung and Gozco Plantations Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gozco Plantations Tbk and Tunas Baru 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 Tunas Baru Lampung are associated (or correlated) with Gozco Plantations. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gozco Plantations Tbk has no effect on the direction of Tunas Baru i.e., Tunas Baru and Gozco Plantations go up and down completely randomly.

Pair Corralation between Tunas Baru and Gozco Plantations

Assuming the 90 days trading horizon Tunas Baru is expected to generate 2.57 times less return on investment than Gozco Plantations. But when comparing it to its historical volatility, Tunas Baru Lampung is 2.11 times less risky than Gozco Plantations. It trades about 0.07 of its potential returns per unit of risk. Gozco Plantations Tbk is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  9,100  in Gozco Plantations Tbk on September 17, 2024 and sell it today you would earn a total of  1,000.00  from holding Gozco Plantations Tbk or generate 10.99% return on investment over 90 days.

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

Tunas Baru Lampung  vs.  Gozco Plantations Tbk

Tunas Baru Lampung

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tunas Baru Lampung are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Tunas Baru is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Gozco Plantations Tbk

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gozco Plantations Tbk are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Gozco Plantations may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Tunas Baru and Gozco Plantations

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

The idea behind Tunas Baru Lampung and Gozco Plantations 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.