Correlation Between Capri Holdings and Adaro Energy

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

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

Diversification Opportunities for Capri Holdings and Adaro Energy

0.37

Correlation Coefficient

Capri Holdings  Adaro Energy

Weak diversification

The 3 months correlation between Capri and Adaro is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Capri Holdings and Adaro Energy Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adaro Energy Tbk and Capri Holdings 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 Capri Holdings are associated (or correlated) with Adaro Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adaro Energy Tbk has no effect on the direction of Capri Holdings i.e., Capri Holdings and Adaro Energy go up and down completely randomly.

Pair Corralation between Capri Holdings and Adaro Energy

Given the investment horizon of 90 days Capri Holdings is expected to under-perform the Adaro Energy. In addition to that, Capri Holdings is 1.7 times more volatile than Adaro Energy Tbk. It trades about -0.05 of its total potential returns per unit of risk. Adaro Energy Tbk is currently generating about 0.03 per unit of volatility. If you would invest  1,117  in Adaro Energy Tbk on August 30, 2024 and sell it today you would earn a total of  23.00  from holding Adaro Energy Tbk or generate 2.06% return on investment over 90 days.

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

Capri Holdings  vs.  Adaro Energy Tbk

Capri Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capri Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in December 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Adaro Energy Tbk

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Adaro Energy Tbk are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Adaro Energy may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Capri Holdings and Adaro Energy

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

The idea behind Capri Holdings and Adaro Energy 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.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.