Correlation Between Vale Indonesia and Harum Energy

Can any of the company-specific risk be diversified away by investing in both Vale Indonesia and Harum Energy 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 Harum Energy 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 Harum Energy Tbk, you can compare the effects of market volatilities on Vale Indonesia and Harum Energy 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 Harum Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vale Indonesia and Harum Energy.

Diversification Opportunities for Vale Indonesia and Harum Energy

0.9

Correlation Coefficient

Vale Indonesia  Harum Energy

Almost no diversification

The 3 months correlation between Vale and Harum is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Vale Indonesia Tbk and Harum Energy Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Harum Energy Tbk 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 Harum Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Harum Energy Tbk has no effect on the direction of Vale Indonesia i.e., Vale Indonesia and Harum Energy go up and down completely randomly.

Pair Corralation between Vale Indonesia and Harum Energy

Assuming the 90 days trading horizon Vale Indonesia Tbk is expected to under-perform the Harum Energy. In addition to that, Vale Indonesia is 1.49 times more volatile than Harum Energy Tbk. It trades about -0.18 of its total potential returns per unit of risk. Harum Energy Tbk is currently generating about -0.24 per unit of volatility. If you would invest  102,500  in Harum Energy Tbk on December 27, 2024 and sell it today you would lose (31,500) from holding Harum Energy Tbk or give up 30.73% of portfolio value over 90 days.

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

Vale Indonesia Tbk  vs.  Harum Energy Tbk

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.

Harum Energy Tbk

Risk-Adjusted Performance

Very Weak

Over the last 90 days Harum Energy 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.

Pair Trading with Vale Indonesia and Harum Energy

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

The idea behind Vale Indonesia Tbk and Harum Energy 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.