Correlation Between Nokian Renkaat and PT Gajah

Can any of the company-specific risk be diversified away by investing in both Nokian Renkaat and PT Gajah 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 Nokian Renkaat and PT Gajah into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nokian Renkaat Oyj and PT Gajah Tunggal, you can compare the effects of market volatilities on Nokian Renkaat and PT Gajah 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 Nokian Renkaat with a short position of PT Gajah. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nokian Renkaat and PT Gajah.

Diversification Opportunities for Nokian Renkaat and PT Gajah

0.37

Correlation Coefficient

Nokian Renkaat  PT Gajah

Weak diversification

The 3 months correlation between Nokian and GH8 is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Nokian Renkaat Oyj and PT Gajah Tunggal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Gajah Tunggal and Nokian Renkaat 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 Nokian Renkaat Oyj are associated (or correlated) with PT Gajah. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Gajah Tunggal has no effect on the direction of Nokian Renkaat i.e., Nokian Renkaat and PT Gajah go up and down completely randomly.

Pair Corralation between Nokian Renkaat and PT Gajah

Assuming the 90 days horizon Nokian Renkaat Oyj is expected to under-perform the PT Gajah. But the stock apears to be less risky and, when comparing its historical volatility, Nokian Renkaat Oyj is 5.33 times less risky than PT Gajah. The stock trades about -0.14 of its potential returns per unit of risk. The PT Gajah Tunggal is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  5.75  in PT Gajah Tunggal on October 2, 2024 and sell it today you would lose (0.40) from holding PT Gajah Tunggal or give up 6.96% of portfolio value over 90 days.

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

Nokian Renkaat Oyj  vs.  PT Gajah Tunggal

Nokian Renkaat Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nokian Renkaat Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

PT Gajah Tunggal

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PT Gajah Tunggal are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, PT Gajah may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Nokian Renkaat and PT Gajah

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

The idea behind Nokian Renkaat Oyj and PT Gajah Tunggal 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 Transaction History module to view history of all your transactions and understand their impact on performance.