Correlation Between Kedawung Setia and Pudjiadi Sons

Can any of the company-specific risk be diversified away by investing in both Kedawung Setia and Pudjiadi Sons 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 Kedawung Setia and Pudjiadi Sons into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Kedawung Setia Industrial and Pudjiadi Sons Tbk, you can compare the effects of market volatilities on Kedawung Setia and Pudjiadi Sons 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 Kedawung Setia with a short position of Pudjiadi Sons. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kedawung Setia and Pudjiadi Sons.

Diversification Opportunities for Kedawung Setia and Pudjiadi Sons

-0.63

Correlation Coefficient

Kedawung Setia  Pudjiadi Sons

Excellent diversification

The 3 months correlation between Kedawung and Pudjiadi is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Kedawung Setia Industrial and Pudjiadi Sons Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pudjiadi Sons Tbk and Kedawung Setia 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 Kedawung Setia Industrial are associated (or correlated) with Pudjiadi Sons. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pudjiadi Sons Tbk has no effect on the direction of Kedawung Setia i.e., Kedawung Setia and Pudjiadi Sons go up and down completely randomly.

Pair Corralation between Kedawung Setia and Pudjiadi Sons

Assuming the 90 days trading horizon Kedawung Setia is expected to generate 12.95 times less return on investment than Pudjiadi Sons. But when comparing it to its historical volatility, Kedawung Setia Industrial is 2.81 times less risky than Pudjiadi Sons. It trades about 0.02 of its potential returns per unit of risk. Pudjiadi Sons Tbk is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  45,400  in Pudjiadi Sons Tbk on October 21, 2024 and sell it today you would earn a total of  9,100  from holding Pudjiadi Sons Tbk or generate 20.04% return on investment over 90 days.

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

Kedawung Setia Industrial  vs.  Pudjiadi Sons Tbk

Kedawung Setia Industrial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kedawung Setia Industrial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Kedawung Setia is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pudjiadi Sons Tbk

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pudjiadi Sons Tbk are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Pudjiadi Sons disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kedawung Setia and Pudjiadi Sons

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

The idea behind Kedawung Setia Industrial and Pudjiadi Sons 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.