Correlation Between PT Indonesia and Steel Pipe

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

By analyzing existing cross correlation between PT Indonesia Kendaraan and Steel Pipe Industry, you can compare the effects of market volatilities on PT Indonesia and Steel Pipe 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 PT Indonesia with a short position of Steel Pipe. Check out your portfolio center. Please also check ongoing floating volatility patterns of PT Indonesia and Steel Pipe.

Diversification Opportunities for PT Indonesia and Steel Pipe

-0.24

Correlation Coefficient

PT Indonesia  Steel Pipe

Very good diversification

The 3 months correlation between IPCC and Steel is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding PT Indonesia Kendaraan and Steel Pipe Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Pipe Industry and PT 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 PT Indonesia Kendaraan are associated (or correlated) with Steel Pipe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steel Pipe Industry has no effect on the direction of PT Indonesia i.e., PT Indonesia and Steel Pipe go up and down completely randomly.

Pair Corralation between PT Indonesia and Steel Pipe

Assuming the 90 days trading horizon PT Indonesia Kendaraan is expected to generate 1.2 times more return on investment than Steel Pipe. However, PT Indonesia is 1.2 times more volatile than Steel Pipe Industry. It trades about 0.01 of its potential returns per unit of risk. Steel Pipe Industry is currently generating about -0.18 per unit of risk. If you would invest  71,507  in PT Indonesia Kendaraan on December 1, 2024 and sell it today you would lose (7.00) from holding PT Indonesia Kendaraan or give up 0.01% of portfolio value over 90 days.

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

PT Indonesia Kendaraan  vs.  Steel Pipe Industry

PT Indonesia Kendaraan

Risk-Adjusted Performance

Very Weak

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

Steel Pipe Industry

Risk-Adjusted Performance

Very Weak

Over the last 90 days Steel Pipe Industry 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 PT Indonesia and Steel Pipe

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

The idea behind PT Indonesia Kendaraan and Steel Pipe Industry 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.