Correlation Between Gudang Garam and Archi Indonesia

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

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

Diversification Opportunities for Gudang Garam and Archi Indonesia

0.69

Correlation Coefficient

Gudang Garam  Archi Indonesia

Poor diversification

The 3 months correlation between Gudang and Archi is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Gudang Garam Tbk and Archi Indonesia Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Archi Indonesia Tbk and Gudang Garam 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 Gudang Garam Tbk are associated (or correlated) with Archi Indonesia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Archi Indonesia Tbk has no effect on the direction of Gudang Garam i.e., Gudang Garam and Archi Indonesia go up and down completely randomly.

Pair Corralation between Gudang Garam and Archi Indonesia

Assuming the 90 days trading horizon Gudang Garam Tbk is expected to under-perform the Archi Indonesia. But the stock apears to be less risky and, when comparing its historical volatility, Gudang Garam Tbk is 1.45 times less risky than Archi Indonesia. The stock trades about -0.25 of its potential returns per unit of risk. The Archi Indonesia Tbk is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  29,200  in Archi Indonesia Tbk on September 1, 2024 and sell it today you would lose (2,600) from holding Archi Indonesia Tbk or give up 8.9% of portfolio value over 90 days.

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

Gudang Garam Tbk  vs.  Archi Indonesia Tbk

Gudang Garam Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gudang Garam 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 December 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Archi Indonesia Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Archi Indonesia Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Gudang Garam and Archi Indonesia

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

The idea behind Gudang Garam Tbk and Archi Indonesia 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.