Correlation Between Krakatau Steel and Equity Development

Can any of the company-specific risk be diversified away by investing in both Krakatau Steel and Equity Development 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 Equity Development 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 Equity Development Investment, you can compare the effects of market volatilities on Krakatau Steel and Equity Development 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 Equity Development. Check out your portfolio center. Please also check ongoing floating volatility patterns of Krakatau Steel and Equity Development.

Diversification Opportunities for Krakatau Steel and Equity Development

0.41

Correlation Coefficient

Krakatau Steel  Equity Development

Very weak diversification

The 3 months correlation between Krakatau and Equity is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Krakatau Steel Persero and Equity Development Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Development 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 Equity Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Development has no effect on the direction of Krakatau Steel i.e., Krakatau Steel and Equity Development go up and down completely randomly.

Pair Corralation between Krakatau Steel and Equity Development

Assuming the 90 days trading horizon Krakatau Steel Persero is expected to under-perform the Equity Development. But the stock apears to be less risky and, when comparing its historical volatility, Krakatau Steel Persero is 1.1 times less risky than Equity Development. The stock trades about -0.1 of its potential returns per unit of risk. The Equity Development Investment is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  5,800  in Equity Development Investment on December 4, 2024 and sell it today you would earn a total of  0.00  from holding Equity Development Investment or generate 0.0% 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.  Equity Development Investment

Krakatau Steel Persero

Risk-Adjusted Performance

Very Weak

Over the last 90 days Krakatau Steel 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 April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Equity Development

Risk-Adjusted Performance

Very Weak

Over the last 90 days Equity Development Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Equity Development 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 Krakatau Steel and Equity Development

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

The idea behind Krakatau Steel Persero and Equity Development Investment 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.