Correlation Between Perusahaan Gas and Steel Pipe

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

By analyzing existing cross correlation between Perusahaan Gas Negara and Steel Pipe Industry, you can compare the effects of market volatilities on Perusahaan Gas and Steel Pipe 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 Gas with a short position of Steel Pipe. Check out your portfolio center. Please also check ongoing floating volatility patterns of Perusahaan Gas and Steel Pipe.

Diversification Opportunities for Perusahaan Gas and Steel Pipe

-0.56

Correlation Coefficient

Perusahaan Gas  Steel Pipe

Excellent diversification

The 3 months correlation between Perusahaan and Steel is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Perusahaan Gas Negara and Steel Pipe Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Pipe Industry and Perusahaan Gas 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 Gas Negara are associated (or correlated) with Steel Pipe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steel Pipe Industry has no effect on the direction of Perusahaan Gas i.e., Perusahaan Gas and Steel Pipe go up and down completely randomly.

Pair Corralation between Perusahaan Gas and Steel Pipe

Assuming the 90 days trading horizon Perusahaan Gas Negara is expected to generate 1.56 times more return on investment than Steel Pipe. However, Perusahaan Gas is 1.56 times more volatile than Steel Pipe Industry. It trades about 0.07 of its potential returns per unit of risk. Steel Pipe Industry is currently generating about -0.11 per unit of risk. If you would invest  154,000  in Perusahaan Gas Negara on November 27, 2024 and sell it today you would earn a total of  10,500  from holding Perusahaan Gas Negara or generate 6.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.25%
Values	Daily Returns

Perusahaan Gas Negara  vs.  Steel Pipe Industry

Perusahaan Gas Negara

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Perusahaan Gas Negara are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Perusahaan Gas may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Steel Pipe Industry

Risk-Adjusted Performance

Very Weak

Over the last 90 days Steel Pipe Industry 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.

Pair Trading with Perusahaan Gas and Steel Pipe

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

The idea behind Perusahaan Gas Negara and Steel Pipe Industry 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.