Correlation Between Indonesian Tobacco and Siloam International

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

Diversification Opportunities for Indonesian Tobacco and Siloam International

0.67

Correlation Coefficient

Indonesian Tobacco  Siloam International

Poor diversification

The 3 months correlation between Indonesian and Siloam is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Indonesian Tobacco Tbk and Siloam International Hospitals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Siloam International 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 Siloam International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Siloam International has no effect on the direction of Indonesian Tobacco i.e., Indonesian Tobacco and Siloam International go up and down completely randomly.

Pair Corralation between Indonesian Tobacco and Siloam International

Assuming the 90 days trading horizon Indonesian Tobacco Tbk is expected to under-perform the Siloam International. But the stock apears to be less risky and, when comparing its historical volatility, Indonesian Tobacco Tbk is 1.1 times less risky than Siloam International. The stock trades about -0.16 of its potential returns per unit of risk. The Siloam International Hospitals is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  303,000  in Siloam International Hospitals on December 2, 2024 and sell it today you would lose (32,000) from holding Siloam International Hospitals or give up 10.56% of portfolio value over 90 days.

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

Indonesian Tobacco Tbk  vs.  Siloam International Hospitals

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 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.

Siloam International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Siloam International Hospitals 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.

Pair Trading with Indonesian Tobacco and Siloam International

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

The idea behind Indonesian Tobacco Tbk and Siloam International Hospitals 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.