Correlation Between Vale Indonesia and Capital Financial

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

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

Diversification Opportunities for Vale Indonesia and Capital Financial

-0.82

Correlation Coefficient

Vale Indonesia  Capital Financial

Pay attention - limited upside

The 3 months correlation between Vale and Capital is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Vale Indonesia Tbk and Capital Financial Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Financial and Vale Indonesia 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 Vale Indonesia Tbk are associated (or correlated) with Capital Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Financial has no effect on the direction of Vale Indonesia i.e., Vale Indonesia and Capital Financial go up and down completely randomly.

Pair Corralation between Vale Indonesia and Capital Financial

Assuming the 90 days trading horizon Vale Indonesia Tbk is expected to under-perform the Capital Financial. In addition to that, Vale Indonesia is 1.55 times more volatile than Capital Financial Indonesia. It trades about -0.19 of its total potential returns per unit of risk. Capital Financial Indonesia is currently generating about 0.22 per unit of volatility. If you would invest  56,500  in Capital Financial Indonesia on December 30, 2024 and sell it today you would earn a total of  19,500  from holding Capital Financial Indonesia or generate 34.51% return on investment over 90 days.

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

Vale Indonesia Tbk  vs.  Capital Financial Indonesia

Vale Indonesia Tbk

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vale Indonesia 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.

Capital Financial

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Financial Indonesia are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Capital Financial disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vale Indonesia and Capital Financial

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

The idea behind Vale Indonesia Tbk and Capital Financial Indonesia 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.