Correlation Between Indo Tambangraya and Adaro Energy

Can any of the company-specific risk be diversified away by investing in both Indo Tambangraya and Adaro Energy 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 Indo Tambangraya and Adaro Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Indo Tambangraya Megah and Adaro Energy Tbk, you can compare the effects of market volatilities on Indo Tambangraya and Adaro Energy 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 Indo Tambangraya with a short position of Adaro Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indo Tambangraya and Adaro Energy.

Diversification Opportunities for Indo Tambangraya and Adaro Energy

0.48

Correlation Coefficient

Indo Tambangraya  Adaro Energy

Very weak diversification

The 3 months correlation between Indo and Adaro is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Indo Tambangraya Megah and Adaro Energy Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adaro Energy Tbk and Indo Tambangraya 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 Indo Tambangraya Megah are associated (or correlated) with Adaro Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adaro Energy Tbk has no effect on the direction of Indo Tambangraya i.e., Indo Tambangraya and Adaro Energy go up and down completely randomly.

Pair Corralation between Indo Tambangraya and Adaro Energy

Assuming the 90 days horizon Indo Tambangraya Megah is expected to generate 0.66 times more return on investment than Adaro Energy. However, Indo Tambangraya Megah is 1.52 times less risky than Adaro Energy. It trades about -0.06 of its potential returns per unit of risk. Adaro Energy Tbk is currently generating about -0.15 per unit of risk. If you would invest  335.00  in Indo Tambangraya Megah on December 28, 2024 and sell it today you would lose (50.00) from holding Indo Tambangraya Megah or give up 14.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Indo Tambangraya Megah  vs.  Adaro Energy Tbk

Indo Tambangraya Megah

Risk-Adjusted Performance

Very Weak

Over the last 90 days Indo Tambangraya Megah has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Adaro Energy Tbk

Risk-Adjusted Performance

Very Weak

Over the last 90 days Adaro Energy Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Indo Tambangraya and Adaro Energy

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

The idea behind Indo Tambangraya Megah and Adaro Energy 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.