Correlation Between Krakatau Steel and Indonesian Tobacco

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

Diversification Opportunities for Krakatau Steel and Indonesian Tobacco

0.59

Correlation Coefficient

Krakatau Steel  Indonesian Tobacco

Very weak diversification

The 3 months correlation between Krakatau and Indonesian is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Krakatau Steel Persero and Indonesian Tobacco Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indonesian Tobacco Tbk 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 Indonesian Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indonesian Tobacco Tbk has no effect on the direction of Krakatau Steel i.e., Krakatau Steel and Indonesian Tobacco go up and down completely randomly.

Pair Corralation between Krakatau Steel and Indonesian Tobacco

Assuming the 90 days trading horizon Krakatau Steel Persero is expected to under-perform the Indonesian Tobacco. In addition to that, Krakatau Steel is 2.95 times more volatile than Indonesian Tobacco Tbk. It trades about 0.0 of its total potential returns per unit of risk. Indonesian Tobacco Tbk is currently generating about 0.0 per unit of volatility. If you would invest  25,800  in Indonesian Tobacco Tbk on September 5, 2024 and sell it today you would lose (200.00) from holding Indonesian Tobacco Tbk or give up 0.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Krakatau Steel Persero  vs.  Indonesian Tobacco Tbk

Krakatau Steel Persero

Risk-Adjusted Performance

0 of 100

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 quite persistent forward-looking signals, Krakatau Steel is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Indonesian Tobacco Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indonesian Tobacco Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Indonesian Tobacco 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 Indonesian Tobacco

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

The idea behind Krakatau Steel Persero and Indonesian Tobacco 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.