Correlation Between Lippo Cikarang and Natura City

Can any of the company-specific risk be diversified away by investing in both Lippo Cikarang and Natura City 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 Lippo Cikarang and Natura City into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lippo Cikarang Tbk and Natura City Developments, you can compare the effects of market volatilities on Lippo Cikarang and Natura City 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 Lippo Cikarang with a short position of Natura City. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lippo Cikarang and Natura City.

Diversification Opportunities for Lippo Cikarang and Natura City

0.56

Correlation Coefficient

Lippo Cikarang  Natura City

Very weak diversification

The 3 months correlation between Lippo and Natura is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Lippo Cikarang Tbk and Natura City Developments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natura City Developments and Lippo Cikarang 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 Lippo Cikarang Tbk are associated (or correlated) with Natura City. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natura City Developments has no effect on the direction of Lippo Cikarang i.e., Lippo Cikarang and Natura City go up and down completely randomly.

Pair Corralation between Lippo Cikarang and Natura City

Assuming the 90 days trading horizon Lippo Cikarang Tbk is expected to generate 0.8 times more return on investment than Natura City. However, Lippo Cikarang Tbk is 1.25 times less risky than Natura City. It trades about -0.03 of its potential returns per unit of risk. Natura City Developments is currently generating about -0.12 per unit of risk. If you would invest  51,000  in Lippo Cikarang Tbk on December 30, 2024 and sell it today you would lose (3,600) from holding Lippo Cikarang Tbk or give up 7.06% of portfolio value over 90 days.

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

Lippo Cikarang Tbk  vs.  Natura City Developments

Lippo Cikarang Tbk

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lippo Cikarang Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Lippo Cikarang is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Natura City Developments

Risk-Adjusted Performance

Very Weak

Over the last 90 days Natura City Developments 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.

Pair Trading with Lippo Cikarang and Natura City

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

The idea behind Lippo Cikarang Tbk and Natura City Developments 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.