Correlation Between Indonesian Tobacco and PT Charlie

Can any of the company-specific risk be diversified away by investing in both Indonesian Tobacco and PT Charlie 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 PT Charlie 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 PT Charlie Hospital, you can compare the effects of market volatilities on Indonesian Tobacco and PT Charlie 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 PT Charlie. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indonesian Tobacco and PT Charlie.

Diversification Opportunities for Indonesian Tobacco and PT Charlie

-0.59

Correlation Coefficient

Indonesian Tobacco  PT Charlie

Excellent diversification

The 3 months correlation between Indonesian and RSCH is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Indonesian Tobacco Tbk and PT Charlie Hospital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Charlie Hospital 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 PT Charlie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Charlie Hospital has no effect on the direction of Indonesian Tobacco i.e., Indonesian Tobacco and PT Charlie go up and down completely randomly.

Pair Corralation between Indonesian Tobacco and PT Charlie

Assuming the 90 days trading horizon Indonesian Tobacco Tbk is expected to under-perform the PT Charlie. But the stock apears to be less risky and, when comparing its historical volatility, Indonesian Tobacco Tbk is 1.98 times less risky than PT Charlie. The stock trades about -0.08 of its potential returns per unit of risk. The PT Charlie Hospital is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  28,800  in PT Charlie Hospital on December 31, 2024 and sell it today you would earn a total of  4,400  from holding PT Charlie Hospital or generate 15.28% return on investment over 90 days.

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

Indonesian Tobacco Tbk  vs.  PT Charlie Hospital

Indonesian Tobacco Tbk

Risk-Adjusted Performance

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 latest conflicting performance, the Stock's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

PT Charlie Hospital

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PT Charlie Hospital are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, PT Charlie disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Indonesian Tobacco and PT Charlie

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

The idea behind Indonesian Tobacco Tbk and PT Charlie Hospital 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.