Correlation Between Krakatau Steel and Lion Metal

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

Diversification Opportunities for Krakatau Steel and Lion Metal

0.02

Correlation Coefficient

Krakatau Steel  Lion Metal

Significant diversification

The 3 months correlation between Krakatau and Lion is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Krakatau Steel Persero and Lion Metal Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lion Metal Works 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 Lion Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lion Metal Works has no effect on the direction of Krakatau Steel i.e., Krakatau Steel and Lion Metal go up and down completely randomly.

Pair Corralation between Krakatau Steel and Lion Metal

Assuming the 90 days trading horizon Krakatau Steel is expected to generate 1.49 times less return on investment than Lion Metal. But when comparing it to its historical volatility, Krakatau Steel Persero is 2.22 times less risky than Lion Metal. It trades about 0.08 of its potential returns per unit of risk. Lion Metal Works is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  40,000  in Lion Metal Works on December 30, 2024 and sell it today you would lose (800.00) from holding Lion Metal Works or give up 2.0% of portfolio value over 90 days.

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

Krakatau Steel Persero  vs.  Lion Metal Works

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 5 (%) 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.

Lion Metal Works

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lion Metal Works are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Lion Metal disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Krakatau Steel and Lion Metal

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

The idea behind Krakatau Steel Persero and Lion Metal Works 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 Anywhere module to track or share privately all of your investments from the convenience of any device.