Correlation Between Langgeng Makmur and Kapuas Prima

Can any of the company-specific risk be diversified away by investing in both Langgeng Makmur and Kapuas Prima 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 Langgeng Makmur and Kapuas Prima into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Langgeng Makmur Industri and Kapuas Prima Coal, you can compare the effects of market volatilities on Langgeng Makmur and Kapuas Prima 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 Langgeng Makmur with a short position of Kapuas Prima. Check out your portfolio center. Please also check ongoing floating volatility patterns of Langgeng Makmur and Kapuas Prima.

Diversification Opportunities for Langgeng Makmur and Kapuas Prima

0.37

Correlation Coefficient

Langgeng Makmur  Kapuas Prima

Weak diversification

The 3 months correlation between Langgeng and Kapuas is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Langgeng Makmur Industri and Kapuas Prima Coal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kapuas Prima Coal and Langgeng Makmur 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 Langgeng Makmur Industri are associated (or correlated) with Kapuas Prima. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kapuas Prima Coal has no effect on the direction of Langgeng Makmur i.e., Langgeng Makmur and Kapuas Prima go up and down completely randomly.

Pair Corralation between Langgeng Makmur and Kapuas Prima

Assuming the 90 days trading horizon Langgeng Makmur Industri is expected to generate 1.82 times more return on investment than Kapuas Prima. However, Langgeng Makmur is 1.82 times more volatile than Kapuas Prima Coal. It trades about 0.06 of its potential returns per unit of risk. Kapuas Prima Coal is currently generating about 0.11 per unit of risk. If you would invest  11,300  in Langgeng Makmur Industri on October 10, 2024 and sell it today you would earn a total of  1,600  from holding Langgeng Makmur Industri or generate 14.16% return on investment over 90 days.

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

Langgeng Makmur Industri  vs.  Kapuas Prima Coal

Langgeng Makmur Industri

Risk-Adjusted Performance

4 of 100

Insignificant

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

Kapuas Prima Coal

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kapuas Prima Coal are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Kapuas Prima disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Langgeng Makmur and Kapuas Prima

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

The idea behind Langgeng Makmur Industri and Kapuas Prima Coal 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.