Correlation Between PT Gajah and Nippon Light

Can any of the company-specific risk be diversified away by investing in both PT Gajah and Nippon Light 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 PT Gajah and Nippon Light into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between PT Gajah Tunggal and Nippon Light Metal, you can compare the effects of market volatilities on PT Gajah and Nippon Light 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 PT Gajah with a short position of Nippon Light. Check out your portfolio center. Please also check ongoing floating volatility patterns of PT Gajah and Nippon Light.

Diversification Opportunities for PT Gajah and Nippon Light

0.04

Correlation Coefficient

PT Gajah  Nippon Light

Significant diversification

The 3 months correlation between GH8 and Nippon is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding PT Gajah Tunggal and Nippon Light Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Light Metal and PT Gajah 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 PT Gajah Tunggal are associated (or correlated) with Nippon Light. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nippon Light Metal has no effect on the direction of PT Gajah i.e., PT Gajah and Nippon Light go up and down completely randomly.

Pair Corralation between PT Gajah and Nippon Light

Assuming the 90 days horizon PT Gajah Tunggal is expected to generate 5.77 times more return on investment than Nippon Light. However, PT Gajah is 5.77 times more volatile than Nippon Light Metal. It trades about 0.05 of its potential returns per unit of risk. Nippon Light Metal is currently generating about -0.08 per unit of risk. If you would invest  5.45  in PT Gajah Tunggal on October 11, 2024 and sell it today you would earn a total of  0.15  from holding PT Gajah Tunggal or generate 2.75% return on investment over 90 days.

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

PT Gajah Tunggal  vs.  Nippon Light Metal

PT Gajah Tunggal

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PT Gajah Tunggal are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PT Gajah reported solid returns over the last few months and may actually be approaching a breakup point.

Nippon Light Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nippon Light Metal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with PT Gajah and Nippon Light

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

The idea behind PT Gajah Tunggal and Nippon Light Metal 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.