Correlation Between Universal Insurance and PT Indo

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

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

Diversification Opportunities for Universal Insurance and PT Indo

0.71

Correlation Coefficient

Universal Insurance  PT Indo

Poor diversification

The 3 months correlation between Universal and 3IB is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Universal Insurance Holdings and PT Indo Tambangraya in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Indo Tambangraya and Universal Insurance 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 Universal Insurance Holdings are associated (or correlated) with PT Indo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Indo Tambangraya has no effect on the direction of Universal Insurance i.e., Universal Insurance and PT Indo go up and down completely randomly.

Pair Corralation between Universal Insurance and PT Indo

Assuming the 90 days horizon Universal Insurance Holdings is expected to under-perform the PT Indo. But the stock apears to be less risky and, when comparing its historical volatility, Universal Insurance Holdings is 1.42 times less risky than PT Indo. The stock trades about -0.2 of its potential returns per unit of risk. The PT Indo Tambangraya is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  160.00  in PT Indo Tambangraya on October 10, 2024 and sell it today you would lose (8.00) from holding PT Indo Tambangraya or give up 5.0% of portfolio value over 90 days.

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

Universal Insurance Holdings  vs.  PT Indo Tambangraya

Universal Insurance

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Insurance Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Universal Insurance reported solid returns over the last few months and may actually be approaching a breakup point.

PT Indo Tambangraya

Risk-Adjusted Performance

4 of 100

Insignificant

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 fragile basic indicators, PT Indo may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Universal Insurance and PT Indo

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

The idea behind Universal Insurance Holdings and PT Indo Tambangraya 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 Correlations module to find global opportunities by holding instruments from different markets.