Correlation Between Metropolitan Kentjana and Urban Jakarta

Can any of the company-specific risk be diversified away by investing in both Metropolitan Kentjana and Urban Jakarta 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 Metropolitan Kentjana and Urban Jakarta into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Metropolitan Kentjana Tbk and Urban Jakarta Propertindo, you can compare the effects of market volatilities on Metropolitan Kentjana and Urban Jakarta 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 Metropolitan Kentjana with a short position of Urban Jakarta. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metropolitan Kentjana and Urban Jakarta.

Diversification Opportunities for Metropolitan Kentjana and Urban Jakarta

0.36

Correlation Coefficient

Metropolitan Kentjana  Urban Jakarta

Weak diversification

The 3 months correlation between Metropolitan and Urban is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Metropolitan Kentjana Tbk and Urban Jakarta Propertindo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Urban Jakarta Propertindo and Metropolitan Kentjana 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 Metropolitan Kentjana Tbk are associated (or correlated) with Urban Jakarta. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Urban Jakarta Propertindo has no effect on the direction of Metropolitan Kentjana i.e., Metropolitan Kentjana and Urban Jakarta go up and down completely randomly.

Pair Corralation between Metropolitan Kentjana and Urban Jakarta

Assuming the 90 days trading horizon Metropolitan Kentjana Tbk is expected to under-perform the Urban Jakarta. But the stock apears to be less risky and, when comparing its historical volatility, Metropolitan Kentjana Tbk is 4.3 times less risky than Urban Jakarta. The stock trades about -0.1 of its potential returns per unit of risk. The Urban Jakarta Propertindo is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  14,400  in Urban Jakarta Propertindo on September 9, 2024 and sell it today you would lose (1,100) from holding Urban Jakarta Propertindo or give up 7.64% of portfolio value over 90 days.

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

Metropolitan Kentjana Tbk  vs.  Urban Jakarta Propertindo

Metropolitan Kentjana Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metropolitan Kentjana Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Urban Jakarta Propertindo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Urban Jakarta Propertindo has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Urban Jakarta 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 Metropolitan Kentjana and Urban Jakarta

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

The idea behind Metropolitan Kentjana Tbk and Urban Jakarta Propertindo 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.