Correlation Between Oriental Carbon and Garuda Construction

Can any of the company-specific risk be diversified away by investing in both Oriental Carbon and Garuda Construction 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 Oriental Carbon and Garuda Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Oriental Carbon Chemicals and Garuda Construction Engineering, you can compare the effects of market volatilities on Oriental Carbon and Garuda Construction 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 Oriental Carbon with a short position of Garuda Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oriental Carbon and Garuda Construction.

Diversification Opportunities for Oriental Carbon and Garuda Construction

0.43

Correlation Coefficient

Oriental Carbon  Garuda Construction

Very weak diversification

The 3 months correlation between Oriental and Garuda is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Oriental Carbon Chemicals and Garuda Construction Engineerin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Garuda Construction and Oriental Carbon 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 Oriental Carbon Chemicals are associated (or correlated) with Garuda Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Garuda Construction has no effect on the direction of Oriental Carbon i.e., Oriental Carbon and Garuda Construction go up and down completely randomly.

Pair Corralation between Oriental Carbon and Garuda Construction

Assuming the 90 days trading horizon Oriental Carbon is expected to generate 8.95 times less return on investment than Garuda Construction. But when comparing it to its historical volatility, Oriental Carbon Chemicals is 3.16 times less risky than Garuda Construction. It trades about 0.1 of its potential returns per unit of risk. Garuda Construction Engineering is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  8,265  in Garuda Construction Engineering on September 21, 2024 and sell it today you would earn a total of  3,144  from holding Garuda Construction Engineering or generate 38.04% return on investment over 90 days.

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

Oriental Carbon Chemicals  vs.  Garuda Construction Engineerin

Oriental Carbon Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Oriental Carbon Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Oriental Carbon is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Garuda Construction

Risk-Adjusted Performance

4 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Garuda Construction Engineering are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Garuda Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Oriental Carbon and Garuda Construction

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

The idea behind Oriental Carbon Chemicals and Garuda Construction Engineering 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.