Correlation Between Perusahaan Perkebunan and Vale Indonesia

Can any of the company-specific risk be diversified away by investing in both Perusahaan Perkebunan and Vale Indonesia 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 Perusahaan Perkebunan and Vale Indonesia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Perusahaan Perkebunan London and Vale Indonesia Tbk, you can compare the effects of market volatilities on Perusahaan Perkebunan and Vale Indonesia 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 Perusahaan Perkebunan with a short position of Vale Indonesia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Perusahaan Perkebunan and Vale Indonesia.

Diversification Opportunities for Perusahaan Perkebunan and Vale Indonesia

0.09

Correlation Coefficient

Perusahaan Perkebunan  Vale Indonesia

Significant diversification

The 3 months correlation between Perusahaan and Vale is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Perusahaan Perkebunan London and Vale Indonesia Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale Indonesia Tbk and Perusahaan Perkebunan 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 Perusahaan Perkebunan London are associated (or correlated) with Vale Indonesia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale Indonesia Tbk has no effect on the direction of Perusahaan Perkebunan i.e., Perusahaan Perkebunan and Vale Indonesia go up and down completely randomly.

Pair Corralation between Perusahaan Perkebunan and Vale Indonesia

Assuming the 90 days trading horizon Perusahaan Perkebunan London is expected to generate 1.44 times more return on investment than Vale Indonesia. However, Perusahaan Perkebunan is 1.44 times more volatile than Vale Indonesia Tbk. It trades about 0.1 of its potential returns per unit of risk. Vale Indonesia Tbk is currently generating about 0.03 per unit of risk. If you would invest  100,000  in Perusahaan Perkebunan London on September 12, 2024 and sell it today you would earn a total of  15,000  from holding Perusahaan Perkebunan London or generate 15.0% return on investment over 90 days.

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

Perusahaan Perkebunan London  vs.  Vale Indonesia Tbk

Perusahaan Perkebunan

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Perusahaan Perkebunan London are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Perusahaan Perkebunan disclosed solid returns over the last few months and may actually be approaching a breakup point.

Vale Indonesia Tbk

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vale Indonesia Tbk are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Vale Indonesia 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 Perusahaan Perkebunan and Vale Indonesia

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

The idea behind Perusahaan Perkebunan London and Vale Indonesia 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.