Correlation Between Indah Kiat and Putra Rajawali

Can any of the company-specific risk be diversified away by investing in both Indah Kiat and Putra Rajawali 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 Putra Rajawali 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 Putra Rajawali Kencana, you can compare the effects of market volatilities on Indah Kiat and Putra Rajawali 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 Putra Rajawali. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indah Kiat and Putra Rajawali.

Diversification Opportunities for Indah Kiat and Putra Rajawali

0.9

Correlation Coefficient

Indah Kiat  Putra Rajawali

Almost no diversification

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

Pair Corralation between Indah Kiat and Putra Rajawali

Assuming the 90 days trading horizon Indah Kiat Pulp is expected to generate 0.31 times more return on investment than Putra Rajawali. However, Indah Kiat Pulp is 3.26 times less risky than Putra Rajawali. It trades about -0.15 of its potential returns per unit of risk. Putra Rajawali Kencana is currently generating about -0.09 per unit of risk. If you would invest  827,500  in Indah Kiat Pulp on September 15, 2024 and sell it today you would lose (112,500) from holding Indah Kiat Pulp or give up 13.6% of portfolio value over 90 days.

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

Indah Kiat Pulp  vs.  Putra Rajawali Kencana

Indah Kiat Pulp

Risk-Adjusted Performance

0 of 100

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

Putra Rajawali Kencana

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Putra Rajawali Kencana 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 January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Indah Kiat and Putra Rajawali

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

The idea behind Indah Kiat Pulp and Putra Rajawali Kencana 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.