Correlation Between Lippo Karawaci and Nippon Indosari

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

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

Diversification Opportunities for Lippo Karawaci and Nippon Indosari

0.26

Correlation Coefficient

Lippo Karawaci  Nippon Indosari

Modest diversification

The 3 months correlation between Lippo and Nippon is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Lippo Karawaci Tbk and Nippon Indosari Corpindo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Indosari Corpindo and Lippo Karawaci 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 Karawaci Tbk are associated (or correlated) with Nippon Indosari. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nippon Indosari Corpindo has no effect on the direction of Lippo Karawaci i.e., Lippo Karawaci and Nippon Indosari go up and down completely randomly.

Pair Corralation between Lippo Karawaci and Nippon Indosari

Assuming the 90 days trading horizon Lippo Karawaci Tbk is expected to generate 2.25 times more return on investment than Nippon Indosari. However, Lippo Karawaci is 2.25 times more volatile than Nippon Indosari Corpindo. It trades about 0.03 of its potential returns per unit of risk. Nippon Indosari Corpindo is currently generating about -0.02 per unit of risk. If you would invest  8,100  in Lippo Karawaci Tbk on October 21, 2024 and sell it today you would earn a total of  1,300  from holding Lippo Karawaci Tbk or generate 16.05% return on investment over 90 days.

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

Lippo Karawaci Tbk  vs.  Nippon Indosari Corpindo

Lippo Karawaci Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lippo Karawaci Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Nippon Indosari Corpindo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nippon Indosari Corpindo has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Nippon Indosari 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 Lippo Karawaci and Nippon Indosari

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

The idea behind Lippo Karawaci Tbk and Nippon Indosari Corpindo 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.