Correlation Between Ace Hardware and Ultra Jaya

Can any of the company-specific risk be diversified away by investing in both Ace Hardware and Ultra Jaya 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 Ace Hardware and Ultra Jaya into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ace Hardware Indonesia and Ultra Jaya Milk, you can compare the effects of market volatilities on Ace Hardware and Ultra Jaya 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 Ace Hardware with a short position of Ultra Jaya. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ace Hardware and Ultra Jaya.

Diversification Opportunities for Ace Hardware and Ultra Jaya

0.37

Correlation Coefficient

Ace Hardware  Ultra Jaya

Weak diversification

The 3 months correlation between Ace and Ultra is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Ace Hardware Indonesia and Ultra Jaya Milk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultra Jaya Milk and Ace Hardware 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 Ace Hardware Indonesia are associated (or correlated) with Ultra Jaya. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultra Jaya Milk has no effect on the direction of Ace Hardware i.e., Ace Hardware and Ultra Jaya go up and down completely randomly.

Pair Corralation between Ace Hardware and Ultra Jaya

Assuming the 90 days trading horizon Ace Hardware Indonesia is expected to generate 1.82 times more return on investment than Ultra Jaya. However, Ace Hardware is 1.82 times more volatile than Ultra Jaya Milk. It trades about 0.06 of its potential returns per unit of risk. Ultra Jaya Milk is currently generating about -0.05 per unit of risk. If you would invest  71,500  in Ace Hardware Indonesia on August 31, 2024 and sell it today you would earn a total of  5,500  from holding Ace Hardware Indonesia or generate 7.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Ace Hardware Indonesia  vs.  Ultra Jaya Milk

Ace Hardware Indonesia

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ace Hardware Indonesia are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Ace Hardware may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Ultra Jaya Milk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ultra Jaya Milk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Ultra Jaya is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Ace Hardware and Ultra Jaya

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

The idea behind Ace Hardware Indonesia and Ultra Jaya Milk 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.