Correlation Between Indonesian Tobacco and Cisarua Mountain

Can any of the company-specific risk be diversified away by investing in both Indonesian Tobacco and Cisarua Mountain 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 Indonesian Tobacco and Cisarua Mountain into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Indonesian Tobacco Tbk and Cisarua Mountain Dairy, you can compare the effects of market volatilities on Indonesian Tobacco and Cisarua Mountain 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 Indonesian Tobacco with a short position of Cisarua Mountain. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indonesian Tobacco and Cisarua Mountain.

Diversification Opportunities for Indonesian Tobacco and Cisarua Mountain

0.44

Correlation Coefficient

Indonesian Tobacco  Cisarua Mountain

Very weak diversification

The 3 months correlation between Indonesian and Cisarua is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Indonesian Tobacco Tbk and Cisarua Mountain Dairy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisarua Mountain Dairy and Indonesian Tobacco 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 Indonesian Tobacco Tbk are associated (or correlated) with Cisarua Mountain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cisarua Mountain Dairy has no effect on the direction of Indonesian Tobacco i.e., Indonesian Tobacco and Cisarua Mountain go up and down completely randomly.

Pair Corralation between Indonesian Tobacco and Cisarua Mountain

Assuming the 90 days trading horizon Indonesian Tobacco is expected to generate 12.17 times less return on investment than Cisarua Mountain. But when comparing it to its historical volatility, Indonesian Tobacco Tbk is 1.43 times less risky than Cisarua Mountain. It trades about 0.01 of its potential returns per unit of risk. Cisarua Mountain Dairy is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  515,000  in Cisarua Mountain Dairy on September 4, 2024 and sell it today you would earn a total of  35,000  from holding Cisarua Mountain Dairy or generate 6.8% return on investment over 90 days.

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

Indonesian Tobacco Tbk  vs.  Cisarua Mountain Dairy

Indonesian Tobacco Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

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

Cisarua Mountain Dairy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cisarua Mountain Dairy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Cisarua Mountain may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Indonesian Tobacco and Cisarua Mountain

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

The idea behind Indonesian Tobacco Tbk and Cisarua Mountain Dairy 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.