Correlation Between Gudang Garam and Indal Aluminium

Can any of the company-specific risk be diversified away by investing in both Gudang Garam and Indal Aluminium 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 Indal Aluminium 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 Indal Aluminium Industry, you can compare the effects of market volatilities on Gudang Garam and Indal Aluminium 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 Indal Aluminium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gudang Garam and Indal Aluminium.

Diversification Opportunities for Gudang Garam and Indal Aluminium

-0.7

Correlation Coefficient

Gudang Garam  Indal Aluminium

Excellent diversification

The 3 months correlation between Gudang and Indal is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Gudang Garam Tbk and Indal Aluminium Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indal Aluminium Industry 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 Indal Aluminium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indal Aluminium Industry has no effect on the direction of Gudang Garam i.e., Gudang Garam and Indal Aluminium go up and down completely randomly.

Pair Corralation between Gudang Garam and Indal Aluminium

Assuming the 90 days trading horizon Gudang Garam Tbk is expected to under-perform the Indal Aluminium. But the stock apears to be less risky and, when comparing its historical volatility, Gudang Garam Tbk is 4.95 times less risky than Indal Aluminium. The stock trades about -0.2 of its potential returns per unit of risk. The Indal Aluminium Industry is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  9,600  in Indal Aluminium Industry on December 30, 2024 and sell it today you would earn a total of  7,300  from holding Indal Aluminium Industry or generate 76.04% return on investment over 90 days.

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

Gudang Garam Tbk  vs.  Indal Aluminium Industry

Gudang Garam Tbk

Risk-Adjusted Performance

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 April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Indal Aluminium Industry

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Indal Aluminium Industry are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Indal Aluminium disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gudang Garam and Indal Aluminium

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

The idea behind Gudang Garam Tbk and Indal Aluminium Industry 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.