Correlation Between Vale Indonesia and Inocycle Technology

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

Diversification Opportunities for Vale Indonesia and Inocycle Technology

-0.52

Correlation Coefficient

Vale Indonesia  Inocycle Technology

Excellent diversification

The 3 months correlation between Vale and Inocycle is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Vale Indonesia Tbk and Inocycle Technology Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inocycle Technology 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 Inocycle Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inocycle Technology Tbk has no effect on the direction of Vale Indonesia i.e., Vale Indonesia and Inocycle Technology go up and down completely randomly.

Pair Corralation between Vale Indonesia and Inocycle Technology

Assuming the 90 days trading horizon Vale Indonesia Tbk is expected to under-perform the Inocycle Technology. But the stock apears to be less risky and, when comparing its historical volatility, Vale Indonesia Tbk is 1.7 times less risky than Inocycle Technology. The stock trades about -0.04 of its potential returns per unit of risk. The Inocycle Technology Tbk is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  9,500  in Inocycle Technology Tbk on September 2, 2024 and sell it today you would earn a total of  500.00  from holding Inocycle Technology Tbk or generate 5.26% return on investment over 90 days.

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

Vale Indonesia Tbk  vs.  Inocycle Technology Tbk

Vale Indonesia Tbk

Risk-Adjusted Performance

0 of 100

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 quite persistent forward-looking signals, Vale Indonesia is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Inocycle Technology Tbk

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Inocycle Technology Tbk are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Inocycle Technology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vale Indonesia and Inocycle Technology

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

The idea behind Vale Indonesia Tbk and Inocycle Technology 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.