Correlation Between Indah Kiat and Pabrik Kertas

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

Diversification Opportunities for Indah Kiat and Pabrik Kertas

0.95

Correlation Coefficient

Indah Kiat  Pabrik Kertas

Almost no diversification

The 3 months correlation between Indah and Pabrik is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Indah Kiat Pulp and Pabrik Kertas Tjiwi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pabrik Kertas Tjiwi 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 Pabrik Kertas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pabrik Kertas Tjiwi has no effect on the direction of Indah Kiat i.e., Indah Kiat and Pabrik Kertas go up and down completely randomly.

Pair Corralation between Indah Kiat and Pabrik Kertas

Assuming the 90 days trading horizon Indah Kiat Pulp is expected to under-perform the Pabrik Kertas. In addition to that, Indah Kiat is 1.28 times more volatile than Pabrik Kertas Tjiwi. It trades about -0.24 of its total potential returns per unit of risk. Pabrik Kertas Tjiwi is currently generating about -0.22 per unit of volatility. If you would invest  627,500  in Pabrik Kertas Tjiwi on December 2, 2024 and sell it today you would lose (152,500) from holding Pabrik Kertas Tjiwi or give up 24.3% 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.  Pabrik Kertas Tjiwi

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.

Pabrik Kertas Tjiwi

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pabrik Kertas Tjiwi 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 Indah Kiat and Pabrik Kertas

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

The idea behind Indah Kiat Pulp and Pabrik Kertas Tjiwi 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.

Check out your portfolio center.

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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.