Correlation Between Indah Kiat and Charoen Pokphand

Can any of the company-specific risk be diversified away by investing in both Indah Kiat and Charoen Pokphand 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 Indah Kiat and Charoen Pokphand into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Indah Kiat Pulp and Charoen Pokphand Indonesia, you can compare the effects of market volatilities on Indah Kiat and Charoen Pokphand 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 Indah Kiat with a short position of Charoen Pokphand. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indah Kiat and Charoen Pokphand.

Diversification Opportunities for Indah Kiat and Charoen Pokphand

0.82

Correlation Coefficient

Indah Kiat  Charoen Pokphand

Very poor diversification

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

Pair Corralation between Indah Kiat and Charoen Pokphand

Assuming the 90 days trading horizon Indah Kiat Pulp is expected to under-perform the Charoen Pokphand. In addition to that, Indah Kiat is 1.19 times more volatile than Charoen Pokphand Indonesia. It trades about -0.14 of its total potential returns per unit of risk. Charoen Pokphand Indonesia is currently generating about -0.03 per unit of volatility. If you would invest  476,000  in Charoen Pokphand Indonesia on December 30, 2024 and sell it today you would lose (37,000) from holding Charoen Pokphand Indonesia or give up 7.77% of portfolio value over 90 days.

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

Indah Kiat Pulp  vs.  Charoen Pokphand Indonesia

Indah Kiat Pulp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Indah Kiat Pulp 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.

Charoen Pokphand Ind

Risk-Adjusted Performance

Very Weak

Over the last 90 days Charoen Pokphand Indonesia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Charoen Pokphand is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Indah Kiat and Charoen Pokphand

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

The idea behind Indah Kiat Pulp and Charoen Pokphand 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.