Correlation Between Adaro Energy and Indo Tambangraya

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

Diversification Opportunities for Adaro Energy and Indo Tambangraya

0.94

Correlation Coefficient

Adaro Energy  Indo Tambangraya

Almost no diversification

The 3 months correlation between Adaro and Indo is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Adaro Energy Tbk and Indo Tambangraya Megah in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indo Tambangraya Megah 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 Indo Tambangraya. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indo Tambangraya Megah has no effect on the direction of Adaro Energy i.e., Adaro Energy and Indo Tambangraya go up and down completely randomly.

Pair Corralation between Adaro Energy and Indo Tambangraya

Assuming the 90 days trading horizon Adaro Energy Tbk is expected to under-perform the Indo Tambangraya. In addition to that, Adaro Energy is 1.74 times more volatile than Indo Tambangraya Megah. It trades about -0.18 of its total potential returns per unit of risk. Indo Tambangraya Megah is currently generating about -0.17 per unit of volatility. If you would invest  2,670,000  in Indo Tambangraya Megah on December 30, 2024 and sell it today you would lose (375,000) from holding Indo Tambangraya Megah or give up 14.04% of portfolio value over 90 days.

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

Adaro Energy Tbk  vs.  Indo Tambangraya Megah

Adaro Energy Tbk

Risk-Adjusted Performance

Very Weak

Over the last 90 days Adaro Energy Tbk 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 April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Indo Tambangraya Megah

Risk-Adjusted Performance

Very Weak

Over the last 90 days Indo Tambangraya Megah 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 April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Adaro Energy and Indo Tambangraya

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

The idea behind Adaro Energy Tbk and Indo Tambangraya Megah 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.