Correlation Between Kawasan Industri and Tunas Baru

Can any of the company-specific risk be diversified away by investing in both Kawasan Industri and Tunas Baru 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 Tunas Baru 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 Tunas Baru Lampung, you can compare the effects of market volatilities on Kawasan Industri and Tunas Baru 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 Tunas Baru. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kawasan Industri and Tunas Baru.

Diversification Opportunities for Kawasan Industri and Tunas Baru

0.63

Correlation Coefficient

Kawasan Industri  Tunas Baru

Poor diversification

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

Pair Corralation between Kawasan Industri and Tunas Baru

Assuming the 90 days trading horizon Kawasan Industri Jababeka is expected to generate 0.92 times more return on investment than Tunas Baru. However, Kawasan Industri Jababeka is 1.08 times less risky than Tunas Baru. It trades about 0.12 of its potential returns per unit of risk. Tunas Baru Lampung is currently generating about -0.04 per unit of risk. If you would invest  19,000  in Kawasan Industri Jababeka on September 3, 2024 and sell it today you would earn a total of  500.00  from holding Kawasan Industri Jababeka or generate 2.63% return on investment over 90 days.

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

Kawasan Industri Jababeka  vs.  Tunas Baru Lampung

Kawasan Industri Jababeka

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kawasan Industri Jababeka are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Kawasan Industri disclosed solid returns over the last few months and may actually be approaching a breakup point.

Tunas Baru Lampung

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tunas Baru Lampung are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Tunas Baru is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Kawasan Industri and Tunas Baru

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

The idea behind Kawasan Industri Jababeka and Tunas Baru Lampung 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.