Correlation Between Vale Indonesia and Krakatau Steel

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

Diversification Opportunities for Vale Indonesia and Krakatau Steel

0.38

Correlation Coefficient

Vale Indonesia  Krakatau Steel

Weak diversification

The 3 months correlation between Vale and Krakatau is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Vale Indonesia Tbk and Krakatau Steel Persero in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Krakatau Steel Persero 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 Krakatau Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Krakatau Steel Persero has no effect on the direction of Vale Indonesia i.e., Vale Indonesia and Krakatau Steel go up and down completely randomly.

Pair Corralation between Vale Indonesia and Krakatau Steel

Assuming the 90 days trading horizon Vale Indonesia Tbk is expected to under-perform the Krakatau Steel. But the stock apears to be less risky and, when comparing its historical volatility, Vale Indonesia Tbk is 1.39 times less risky than Krakatau Steel. The stock trades about -0.19 of its potential returns per unit of risk. The Krakatau Steel Persero is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  10,600  in Krakatau Steel Persero on December 31, 2024 and sell it today you would earn a total of  1,300  from holding Krakatau Steel Persero or generate 12.26% return on investment over 90 days.

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

Vale Indonesia Tbk  vs.  Krakatau Steel Persero

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 May 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Krakatau Steel Persero

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Krakatau Steel Persero are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Krakatau Steel disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vale Indonesia and Krakatau Steel

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

The idea behind Vale Indonesia Tbk and Krakatau Steel Persero 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 Commodity Directory module to find actively traded commodities issued by global exchanges.