Correlation Between Capital Financial and Vale Indonesia

Can any of the company-specific risk be diversified away by investing in both Capital Financial and Vale Indonesia 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 Capital Financial and Vale Indonesia into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Capital Financial and Vale Indonesia

-0.36

Correlation Coefficient

Capital Financial  Vale Indonesia

Very good diversification

The 3 months correlation between Capital and Vale is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Capital Financial Indonesia and Vale Indonesia Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale Indonesia Tbk and Capital Financial 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 Capital Financial Indonesia are associated (or correlated) with Vale Indonesia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale Indonesia Tbk has no effect on the direction of Capital Financial i.e., Capital Financial and Vale Indonesia go up and down completely randomly.

Pair Corralation between Capital Financial and Vale Indonesia

Assuming the 90 days trading horizon Capital Financial Indonesia is expected to generate 1.56 times more return on investment than Vale Indonesia. However, Capital Financial is 1.56 times more volatile than Vale Indonesia Tbk. It trades about 0.02 of its potential returns per unit of risk. Vale Indonesia Tbk is currently generating about -0.04 per unit of risk. If you would invest  50,000  in Capital Financial Indonesia on September 2, 2024 and sell it today you would earn a total of  1,000.00  from holding Capital Financial Indonesia or generate 2.0% return on investment over 90 days.

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

Capital Financial Indonesia  vs.  Vale Indonesia Tbk

Capital Financial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Financial Indonesia are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Capital Financial is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Vale Indonesia Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vale Indonesia Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Vale Indonesia 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 Capital Financial and Vale Indonesia

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

The idea behind Capital Financial Indonesia and Vale Indonesia 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.