Correlation Between Adaro Minerals and Elang Mahkota

Can any of the company-specific risk be diversified away by investing in both Adaro Minerals and Elang Mahkota 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 Adaro Minerals and Elang Mahkota into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Adaro Minerals Indonesia and Elang Mahkota Teknologi, you can compare the effects of market volatilities on Adaro Minerals and Elang Mahkota 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 Adaro Minerals with a short position of Elang Mahkota. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adaro Minerals and Elang Mahkota.

Diversification Opportunities for Adaro Minerals and Elang Mahkota

0.06

Correlation Coefficient

Adaro Minerals  Elang Mahkota

Significant diversification

The 3 months correlation between Adaro and Elang is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Adaro Minerals Indonesia and Elang Mahkota Teknologi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elang Mahkota Teknologi and Adaro Minerals 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 Adaro Minerals Indonesia are associated (or correlated) with Elang Mahkota. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elang Mahkota Teknologi has no effect on the direction of Adaro Minerals i.e., Adaro Minerals and Elang Mahkota go up and down completely randomly.

Pair Corralation between Adaro Minerals and Elang Mahkota

Assuming the 90 days trading horizon Adaro Minerals Indonesia is expected to under-perform the Elang Mahkota. But the stock apears to be less risky and, when comparing its historical volatility, Adaro Minerals Indonesia is 1.4 times less risky than Elang Mahkota. The stock trades about -0.28 of its potential returns per unit of risk. The Elang Mahkota Teknologi is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  51,000  in Elang Mahkota Teknologi on September 1, 2024 and sell it today you would lose (2,400) from holding Elang Mahkota Teknologi or give up 4.71% of portfolio value over 90 days.

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

Adaro Minerals Indonesia  vs.  Elang Mahkota Teknologi

Adaro Minerals Indonesia

Risk-Adjusted Performance

0 of 100

Very Weak

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

Elang Mahkota Teknologi

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Elang Mahkota Teknologi are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Elang Mahkota disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Adaro Minerals and Elang Mahkota

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

The idea behind Adaro Minerals Indonesia and Elang Mahkota Teknologi 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.

Check out your portfolio center.

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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.