Correlation Between PT Indo and Sumitomo Mitsui

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

By analyzing existing cross correlation between PT Indo Tambangraya and Sumitomo Mitsui Financial, you can compare the effects of market volatilities on PT Indo and Sumitomo Mitsui 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 PT Indo with a short position of Sumitomo Mitsui. Check out your portfolio center. Please also check ongoing floating volatility patterns of PT Indo and Sumitomo Mitsui.

Diversification Opportunities for PT Indo and Sumitomo Mitsui

0.65

Correlation Coefficient

PT Indo  Sumitomo Mitsui

Poor diversification

The 3 months correlation between 3IB and Sumitomo is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding PT Indo Tambangraya and Sumitomo Mitsui Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Mitsui Financial and PT Indo 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 PT Indo Tambangraya are associated (or correlated) with Sumitomo Mitsui. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Mitsui Financial has no effect on the direction of PT Indo i.e., PT Indo and Sumitomo Mitsui go up and down completely randomly.

Pair Corralation between PT Indo and Sumitomo Mitsui

Assuming the 90 days trading horizon PT Indo is expected to generate 2.69 times less return on investment than Sumitomo Mitsui. In addition to that, PT Indo is 1.04 times more volatile than Sumitomo Mitsui Financial. It trades about 0.06 of its total potential returns per unit of risk. Sumitomo Mitsui Financial is currently generating about 0.18 per unit of volatility. If you would invest  1,872  in Sumitomo Mitsui Financial on October 9, 2024 and sell it today you would earn a total of  428.00  from holding Sumitomo Mitsui Financial or generate 22.86% return on investment over 90 days.

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

PT Indo Tambangraya  vs.  Sumitomo Mitsui Financial

PT Indo Tambangraya

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PT Indo Tambangraya are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, PT Indo may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Sumitomo Mitsui Financial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Financial are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sumitomo Mitsui reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PT Indo and Sumitomo Mitsui

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

The idea behind PT Indo Tambangraya and Sumitomo Mitsui Financial 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..