Correlation Between Krakatau Steel and Garuda Indonesia

Can any of the company-specific risk be diversified away by investing in both Krakatau Steel and Garuda Indonesia 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 Krakatau Steel and Garuda Indonesia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Krakatau Steel Persero and Garuda Indonesia Persero, you can compare the effects of market volatilities on Krakatau Steel and Garuda Indonesia 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 Krakatau Steel with a short position of Garuda Indonesia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Krakatau Steel and Garuda Indonesia.

Diversification Opportunities for Krakatau Steel and Garuda Indonesia

0.42

Correlation Coefficient

Krakatau Steel  Garuda Indonesia

Very weak diversification

The 3 months correlation between Krakatau and Garuda is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Krakatau Steel Persero and Garuda Indonesia Persero in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Garuda Indonesia Persero and Krakatau Steel 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 Krakatau Steel Persero are associated (or correlated) with Garuda Indonesia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Garuda Indonesia Persero has no effect on the direction of Krakatau Steel i.e., Krakatau Steel and Garuda Indonesia go up and down completely randomly.

Pair Corralation between Krakatau Steel and Garuda Indonesia

Assuming the 90 days trading horizon Krakatau Steel Persero is expected to generate 1.61 times more return on investment than Garuda Indonesia. However, Krakatau Steel is 1.61 times more volatile than Garuda Indonesia Persero. It trades about 0.06 of its potential returns per unit of risk. Garuda Indonesia Persero is currently generating about -0.13 per unit of risk. If you would invest  10,600  in Krakatau Steel Persero on December 31, 2024 and sell it today you would earn a total of  1,300  from holding Krakatau Steel Persero or generate 12.26% return on investment over 90 days.

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

Krakatau Steel Persero  vs.  Garuda Indonesia Persero

Krakatau Steel Persero

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Krakatau Steel Persero are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Krakatau Steel disclosed solid returns over the last few months and may actually be approaching a breakup point.

Garuda Indonesia Persero

Risk-Adjusted Performance

Very Weak

Over the last 90 days Garuda Indonesia Persero 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 May 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Krakatau Steel and Garuda Indonesia

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

The idea behind Krakatau Steel Persero and Garuda Indonesia Persero 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.

Check out your portfolio center.

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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.