Correlation Between Darma Henwa and Kawasan Industri

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

By analyzing existing cross correlation between Darma Henwa Tbk and Kawasan Industri Jababeka, you can compare the effects of market volatilities on Darma Henwa and Kawasan Industri 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 Darma Henwa with a short position of Kawasan Industri. Check out your portfolio center. Please also check ongoing floating volatility patterns of Darma Henwa and Kawasan Industri.

Diversification Opportunities for Darma Henwa and Kawasan Industri

0.45

Correlation Coefficient

Darma Henwa  Kawasan Industri

Very weak diversification

The 3 months correlation between Darma and Kawasan is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Darma Henwa Tbk and Kawasan Industri Jababeka in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kawasan Industri Jababeka and Darma Henwa 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 Darma Henwa Tbk are associated (or correlated) with Kawasan Industri. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kawasan Industri Jababeka has no effect on the direction of Darma Henwa i.e., Darma Henwa and Kawasan Industri go up and down completely randomly.

Pair Corralation between Darma Henwa and Kawasan Industri

Assuming the 90 days trading horizon Darma Henwa Tbk is expected to under-perform the Kawasan Industri. In addition to that, Darma Henwa is 3.44 times more volatile than Kawasan Industri Jababeka. It trades about -0.02 of its total potential returns per unit of risk. Kawasan Industri Jababeka is currently generating about -0.03 per unit of volatility. If you would invest  19,300  in Kawasan Industri Jababeka on October 22, 2024 and sell it today you would lose (300.00) from holding Kawasan Industri Jababeka or give up 1.55% of portfolio value over 90 days.

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

Darma Henwa Tbk  vs.  Kawasan Industri Jababeka

Darma Henwa Tbk

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Darma Henwa Tbk are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Darma Henwa may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Kawasan Industri Jababeka

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kawasan Industri Jababeka has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Kawasan Industri 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 Darma Henwa and Kawasan Industri

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

The idea behind Darma Henwa Tbk and Kawasan Industri Jababeka 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.