Correlation Between KRAKATAU STEEL and Gossan Resources

Can any of the company-specific risk be diversified away by investing in both KRAKATAU STEEL and Gossan Resources 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 Gossan Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between KRAKATAU STEEL B and Gossan Resources, you can compare the effects of market volatilities on KRAKATAU STEEL and Gossan Resources 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 Gossan Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of KRAKATAU STEEL and Gossan Resources.

Diversification Opportunities for KRAKATAU STEEL and Gossan Resources

-0.72

Correlation Coefficient

KRAKATAU STEEL  Gossan Resources

Pay attention - limited upside

The 3 months correlation between KRAKATAU and Gossan is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding KRAKATAU STEEL B and Gossan Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gossan Resources 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 B are associated (or correlated) with Gossan Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gossan Resources has no effect on the direction of KRAKATAU STEEL i.e., KRAKATAU STEEL and Gossan Resources go up and down completely randomly.

Pair Corralation between KRAKATAU STEEL and Gossan Resources

Assuming the 90 days trading horizon KRAKATAU STEEL is expected to generate 17.43 times less return on investment than Gossan Resources. But when comparing it to its historical volatility, KRAKATAU STEEL B is 7.49 times less risky than Gossan Resources. It trades about 0.04 of its potential returns per unit of risk. Gossan Resources is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2.86  in Gossan Resources on October 22, 2024 and sell it today you would lose (1.96) from holding Gossan Resources or give up 68.53% of portfolio value over 90 days.

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

KRAKATAU STEEL B   vs.  Gossan Resources

KRAKATAU STEEL B

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KRAKATAU STEEL B are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile forward-looking signals, KRAKATAU STEEL unveiled solid returns over the last few months and may actually be approaching a breakup point.

Gossan Resources

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gossan Resources are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Gossan Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KRAKATAU STEEL and Gossan Resources

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

The idea behind KRAKATAU STEEL B and Gossan Resources 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.