Correlation Between Arita Prima and Garuda Metalindo

Can any of the company-specific risk be diversified away by investing in both Arita Prima and Garuda Metalindo 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 Arita Prima and Garuda Metalindo into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Arita Prima Indonesia and Garuda Metalindo Tbk, you can compare the effects of market volatilities on Arita Prima and Garuda Metalindo 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 Arita Prima with a short position of Garuda Metalindo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arita Prima and Garuda Metalindo.

Diversification Opportunities for Arita Prima and Garuda Metalindo

-0.24

Correlation Coefficient

Arita Prima  Garuda Metalindo

Very good diversification

The 3 months correlation between Arita and Garuda is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Arita Prima Indonesia and Garuda Metalindo Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Garuda Metalindo Tbk and Arita Prima 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 Arita Prima Indonesia are associated (or correlated) with Garuda Metalindo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Garuda Metalindo Tbk has no effect on the direction of Arita Prima i.e., Arita Prima and Garuda Metalindo go up and down completely randomly.

Pair Corralation between Arita Prima and Garuda Metalindo

Assuming the 90 days trading horizon Arita Prima Indonesia is expected to under-perform the Garuda Metalindo. But the stock apears to be less risky and, when comparing its historical volatility, Arita Prima Indonesia is 1.2 times less risky than Garuda Metalindo. The stock trades about -0.02 of its potential returns per unit of risk. The Garuda Metalindo Tbk is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  104,000  in Garuda Metalindo Tbk on September 15, 2024 and sell it today you would earn a total of  26,000  from holding Garuda Metalindo Tbk or generate 25.0% return on investment over 90 days.

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

Arita Prima Indonesia  vs.  Garuda Metalindo Tbk

Arita Prima Indonesia

Risk-Adjusted Performance

0 of 100

Very Weak

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

Garuda Metalindo Tbk

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Garuda Metalindo Tbk are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Garuda Metalindo disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arita Prima and Garuda Metalindo

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

The idea behind Arita Prima Indonesia and Garuda Metalindo Tbk 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.