Correlation Between Indocement Tunggal and Vale Indonesia

Can any of the company-specific risk be diversified away by investing in both Indocement Tunggal and Vale Indonesia 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 Indocement Tunggal and Vale Indonesia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Indocement Tunggal Prakarsa and Vale Indonesia Tbk, you can compare the effects of market volatilities on Indocement Tunggal and Vale Indonesia 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 Indocement Tunggal with a short position of Vale Indonesia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indocement Tunggal and Vale Indonesia.

Diversification Opportunities for Indocement Tunggal and Vale Indonesia

0.78

Correlation Coefficient

Indocement Tunggal  Vale Indonesia

Poor diversification

The 3 months correlation between Indocement and Vale is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Indocement Tunggal Prakarsa and Vale Indonesia Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale Indonesia Tbk and Indocement Tunggal 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 Indocement Tunggal Prakarsa are associated (or correlated) with Vale Indonesia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale Indonesia Tbk has no effect on the direction of Indocement Tunggal i.e., Indocement Tunggal and Vale Indonesia go up and down completely randomly.

Pair Corralation between Indocement Tunggal and Vale Indonesia

Assuming the 90 days trading horizon Indocement Tunggal Prakarsa is expected to generate 0.64 times more return on investment than Vale Indonesia. However, Indocement Tunggal Prakarsa is 1.55 times less risky than Vale Indonesia. It trades about -0.23 of its potential returns per unit of risk. Vale Indonesia Tbk is currently generating about -0.19 per unit of risk. If you would invest  735,000  in Indocement Tunggal Prakarsa on December 31, 2024 and sell it today you would lose (215,000) from holding Indocement Tunggal Prakarsa or give up 29.25% of portfolio value over 90 days.

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

Indocement Tunggal Prakarsa  vs.  Vale Indonesia Tbk

Indocement Tunggal

Risk-Adjusted Performance

Very Weak

Over the last 90 days Indocement Tunggal Prakarsa 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.

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.

Pair Trading with Indocement Tunggal and Vale Indonesia

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

The idea behind Indocement Tunggal Prakarsa and Vale Indonesia 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.