Correlation Between Adaro Minerals and Wahana Inti

Can any of the company-specific risk be diversified away by investing in both Adaro Minerals and Wahana Inti 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 Wahana Inti 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 Wahana Inti MakmurTbk, you can compare the effects of market volatilities on Adaro Minerals and Wahana Inti 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 Wahana Inti. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adaro Minerals and Wahana Inti.

Diversification Opportunities for Adaro Minerals and Wahana Inti

0.48

Correlation Coefficient

Adaro Minerals  Wahana Inti

Very weak diversification

The 3 months correlation between Adaro and Wahana is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Adaro Minerals Indonesia and Wahana Inti MakmurTbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wahana Inti MakmurTbk 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 Wahana Inti. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wahana Inti MakmurTbk has no effect on the direction of Adaro Minerals i.e., Adaro Minerals and Wahana Inti go up and down completely randomly.

Pair Corralation between Adaro Minerals and Wahana Inti

Assuming the 90 days trading horizon Adaro Minerals Indonesia is expected to under-perform the Wahana Inti. But the stock apears to be less risky and, when comparing its historical volatility, Adaro Minerals Indonesia is 1.44 times less risky than Wahana Inti. The stock trades about -0.56 of its potential returns per unit of risk. The Wahana Inti MakmurTbk is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  8,900  in Wahana Inti MakmurTbk on October 11, 2024 and sell it today you would lose (500.00) from holding Wahana Inti MakmurTbk or give up 5.62% of portfolio value over 90 days.

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

Adaro Minerals Indonesia  vs.  Wahana Inti MakmurTbk

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 conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Wahana Inti MakmurTbk

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wahana Inti MakmurTbk are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Wahana Inti 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 Adaro Minerals and Wahana Inti

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

The idea behind Adaro Minerals Indonesia and Wahana Inti MakmurTbk 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.