Correlation Between Credicorp and PT Steel

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

By analyzing existing cross correlation between Credicorp and PT Steel Pipe, you can compare the effects of market volatilities on Credicorp and PT Steel 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 Credicorp with a short position of PT Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Credicorp and PT Steel.

Diversification Opportunities for Credicorp and PT Steel

-0.2

Correlation Coefficient

Credicorp  PT Steel

Good diversification

The 3 months correlation between Credicorp and S08 is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Credicorp and PT Steel Pipe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Steel Pipe and Credicorp 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 Credicorp are associated (or correlated) with PT Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Steel Pipe has no effect on the direction of Credicorp i.e., Credicorp and PT Steel go up and down completely randomly.

Pair Corralation between Credicorp and PT Steel

Assuming the 90 days horizon Credicorp is expected to under-perform the PT Steel. But the stock apears to be less risky and, when comparing its historical volatility, Credicorp is 3.17 times less risky than PT Steel. The stock trades about -0.1 of its potential returns per unit of risk. The PT Steel Pipe is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1.25  in PT Steel Pipe on October 26, 2024 and sell it today you would lose (0.10) from holding PT Steel Pipe or give up 8.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.5%
Values	Daily Returns

Credicorp  vs.  PT Steel Pipe

Credicorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Credicorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Credicorp is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

PT Steel Pipe

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PT Steel Pipe has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Credicorp and PT Steel

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

The idea behind Credicorp and PT Steel Pipe 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.