Correlation Between Adaro Energy and New Hope

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

By analyzing existing cross correlation between Adaro Energy Tbk and New Hope, you can compare the effects of market volatilities on Adaro Energy and New Hope 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 Energy with a short position of New Hope. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adaro Energy and New Hope.

Diversification Opportunities for Adaro Energy and New Hope

-0.07

Correlation Coefficient

Adaro Energy  New Hope

Good diversification

The 3 months correlation between Adaro and New is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Adaro Energy Tbk and New Hope in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Hope and Adaro Energy 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 Energy Tbk are associated (or correlated) with New Hope. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Hope has no effect on the direction of Adaro Energy i.e., Adaro Energy and New Hope go up and down completely randomly.

Pair Corralation between Adaro Energy and New Hope

Assuming the 90 days horizon Adaro Energy Tbk is expected to generate 7.72 times more return on investment than New Hope. However, Adaro Energy is 7.72 times more volatile than New Hope. It trades about 0.24 of its potential returns per unit of risk. New Hope is currently generating about 0.0 per unit of risk. If you would invest  385.00  in Adaro Energy Tbk on October 11, 2024 and sell it today you would earn a total of  610.00  from holding Adaro Energy Tbk or generate 158.44% return on investment over 90 days.

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

Adaro Energy Tbk  vs.  New Hope

Adaro Energy Tbk

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Adaro Energy Tbk are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Adaro Energy showed solid returns over the last few months and may actually be approaching a breakup point.

New Hope

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Hope has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, New Hope is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Adaro Energy and New Hope

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

The idea behind Adaro Energy Tbk and New Hope 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.