Correlation Between Gudang Garam and Pelangi Indah

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

Diversification Opportunities for Gudang Garam and Pelangi Indah

0.6

Correlation Coefficient

Gudang Garam  Pelangi Indah

Poor diversification

The 3 months correlation between Gudang and Pelangi is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Gudang Garam Tbk and Pelangi Indah Canindo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pelangi Indah Canindo 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 Pelangi Indah. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pelangi Indah Canindo has no effect on the direction of Gudang Garam i.e., Gudang Garam and Pelangi Indah go up and down completely randomly.

Pair Corralation between Gudang Garam and Pelangi Indah

Assuming the 90 days trading horizon Gudang Garam Tbk is expected to under-perform the Pelangi Indah. But the stock apears to be less risky and, when comparing its historical volatility, Gudang Garam Tbk is 3.34 times less risky than Pelangi Indah. The stock trades about -0.17 of its potential returns per unit of risk. The Pelangi Indah Canindo is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  10,000  in Pelangi Indah Canindo on December 2, 2024 and sell it today you would earn a total of  1,200  from holding Pelangi Indah Canindo or generate 12.0% return on investment over 90 days.

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

Gudang Garam Tbk  vs.  Pelangi Indah Canindo

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.

Pelangi Indah Canindo

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pelangi Indah Canindo has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Pelangi Indah 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 Gudang Garam and Pelangi Indah

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

The idea behind Gudang Garam Tbk and Pelangi Indah Canindo 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.

Check out your portfolio center.

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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.