Correlation Between Kawasan Industri and Lippo Karawaci

Can any of the company-specific risk be diversified away by investing in both Kawasan Industri and Lippo Karawaci 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 Kawasan Industri and Lippo Karawaci into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Kawasan Industri Jababeka and Lippo Karawaci Tbk, you can compare the effects of market volatilities on Kawasan Industri and Lippo Karawaci 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 Kawasan Industri with a short position of Lippo Karawaci. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kawasan Industri and Lippo Karawaci.

Diversification Opportunities for Kawasan Industri and Lippo Karawaci

0.53

Correlation Coefficient

Kawasan Industri  Lippo Karawaci

Very weak diversification

The 3 months correlation between Kawasan and Lippo is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Kawasan Industri Jababeka and Lippo Karawaci Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lippo Karawaci Tbk and Kawasan Industri 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 Kawasan Industri Jababeka are associated (or correlated) with Lippo Karawaci. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lippo Karawaci Tbk has no effect on the direction of Kawasan Industri i.e., Kawasan Industri and Lippo Karawaci go up and down completely randomly.

Pair Corralation between Kawasan Industri and Lippo Karawaci

Assuming the 90 days trading horizon Kawasan Industri is expected to generate 2.91 times less return on investment than Lippo Karawaci. But when comparing it to its historical volatility, Kawasan Industri Jababeka is 3.36 times less risky than Lippo Karawaci. It trades about 0.11 of its potential returns per unit of risk. Lippo Karawaci Tbk is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  8,800  in Lippo Karawaci Tbk on September 12, 2024 and sell it today you would earn a total of  2,000  from holding Lippo Karawaci Tbk or generate 22.73% return on investment over 90 days.

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

Kawasan Industri Jababeka  vs.  Lippo Karawaci Tbk

Kawasan Industri Jababeka

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kawasan Industri Jababeka are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Kawasan Industri may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Lippo Karawaci Tbk

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lippo Karawaci Tbk are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Lippo Karawaci disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kawasan Industri and Lippo Karawaci

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

The idea behind Kawasan Industri Jababeka and Lippo Karawaci 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.