Correlation Between Iluka Resources and United Tractors

Can any of the company-specific risk be diversified away by investing in both Iluka Resources and United Tractors 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 Iluka Resources and United Tractors into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Iluka Resources Ltd and United Tractors Tbk, you can compare the effects of market volatilities on Iluka Resources and United Tractors 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 Iluka Resources with a short position of United Tractors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iluka Resources and United Tractors.

Diversification Opportunities for Iluka Resources and United Tractors

0.63

Correlation Coefficient

Iluka Resources  United Tractors

Poor diversification

The 3 months correlation between Iluka and United is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Iluka Resources Ltd and United Tractors Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Tractors Tbk and Iluka Resources 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 Iluka Resources Ltd are associated (or correlated) with United Tractors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Tractors Tbk has no effect on the direction of Iluka Resources i.e., Iluka Resources and United Tractors go up and down completely randomly.

Pair Corralation between Iluka Resources and United Tractors

Assuming the 90 days horizon Iluka Resources Ltd is expected to under-perform the United Tractors. But the pink sheet apears to be less risky and, when comparing its historical volatility, Iluka Resources Ltd is 1.27 times less risky than United Tractors. The pink sheet trades about -0.14 of its potential returns per unit of risk. The United Tractors Tbk is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  3,525  in United Tractors Tbk on November 30, 2024 and sell it today you would lose (804.00) from holding United Tractors Tbk or give up 22.81% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Iluka Resources Ltd  vs.  United Tractors Tbk

Iluka Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Iluka Resources Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

United Tractors Tbk

Risk-Adjusted Performance

Very Weak

Over the last 90 days United Tractors Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's forward-looking signals remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Iluka Resources and United Tractors

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

The idea behind Iluka Resources Ltd and United Tractors 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.