Correlation Between Cisarua Mountain and Indonesian Tobacco

Can any of the company-specific risk be diversified away by investing in both Cisarua Mountain and Indonesian Tobacco 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 Cisarua Mountain and Indonesian Tobacco into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cisarua Mountain Dairy and Indonesian Tobacco Tbk, you can compare the effects of market volatilities on Cisarua Mountain and Indonesian Tobacco 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 Cisarua Mountain with a short position of Indonesian Tobacco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cisarua Mountain and Indonesian Tobacco.

Diversification Opportunities for Cisarua Mountain and Indonesian Tobacco

0.7

Correlation Coefficient

Cisarua Mountain  Indonesian Tobacco

Poor diversification

The 3 months correlation between Cisarua and Indonesian is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Cisarua Mountain Dairy and Indonesian Tobacco Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indonesian Tobacco Tbk and Cisarua Mountain 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 Cisarua Mountain Dairy are associated (or correlated) with Indonesian Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indonesian Tobacco Tbk has no effect on the direction of Cisarua Mountain i.e., Cisarua Mountain and Indonesian Tobacco go up and down completely randomly.

Pair Corralation between Cisarua Mountain and Indonesian Tobacco

Assuming the 90 days trading horizon Cisarua Mountain Dairy is expected to under-perform the Indonesian Tobacco. In addition to that, Cisarua Mountain is 1.4 times more volatile than Indonesian Tobacco Tbk. It trades about -0.15 of its total potential returns per unit of risk. Indonesian Tobacco Tbk is currently generating about -0.16 per unit of volatility. If you would invest  25,600  in Indonesian Tobacco Tbk on December 2, 2024 and sell it today you would lose (4,000) from holding Indonesian Tobacco Tbk or give up 15.62% of portfolio value over 90 days.

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

Cisarua Mountain Dairy  vs.  Indonesian Tobacco Tbk

Cisarua Mountain Dairy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cisarua Mountain Dairy 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.

Indonesian Tobacco Tbk

Risk-Adjusted Performance

Very Weak

Over the last 90 days Indonesian Tobacco 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.

Pair Trading with Cisarua Mountain and Indonesian Tobacco

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

The idea behind Cisarua Mountain Dairy and Indonesian Tobacco 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.