Correlation Between Diamond Food and Pertamina Geothermal

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

By analyzing existing cross correlation between Diamond Food Indonesia and Pertamina Geothermal Energy, you can compare the effects of market volatilities on Diamond Food and Pertamina Geothermal 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 Diamond Food with a short position of Pertamina Geothermal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diamond Food and Pertamina Geothermal.

Diversification Opportunities for Diamond Food and Pertamina Geothermal

0.2

Correlation Coefficient

Diamond Food  Pertamina Geothermal

Modest diversification

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

Pair Corralation between Diamond Food and Pertamina Geothermal

Assuming the 90 days trading horizon Diamond Food Indonesia is expected to generate 0.64 times more return on investment than Pertamina Geothermal. However, Diamond Food Indonesia is 1.56 times less risky than Pertamina Geothermal. It trades about 0.16 of its potential returns per unit of risk. Pertamina Geothermal Energy is currently generating about -0.18 per unit of risk. If you would invest  76,500  in Diamond Food Indonesia on October 12, 2024 and sell it today you would earn a total of  3,000  from holding Diamond Food Indonesia or generate 3.92% return on investment over 90 days.

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

Diamond Food Indonesia  vs.  Pertamina Geothermal Energy

Diamond Food Indonesia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamond Food Indonesia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Diamond Food is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pertamina Geothermal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pertamina Geothermal Energy 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 February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Diamond Food and Pertamina Geothermal

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

The idea behind Diamond Food Indonesia and Pertamina Geothermal Energy 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.