Correlation Between Perusahaan Gas and Kedawung Setia

Can any of the company-specific risk be diversified away by investing in both Perusahaan Gas and Kedawung Setia 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 Kedawung Setia 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 Kedawung Setia Industrial, you can compare the effects of market volatilities on Perusahaan Gas and Kedawung Setia 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 Kedawung Setia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Perusahaan Gas and Kedawung Setia.

Diversification Opportunities for Perusahaan Gas and Kedawung Setia

-0.23

Correlation Coefficient

Perusahaan Gas  Kedawung Setia

Very good diversification

The 3 months correlation between Perusahaan and Kedawung is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Perusahaan Gas Negara and Kedawung Setia Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kedawung Setia Industrial 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 Kedawung Setia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kedawung Setia Industrial has no effect on the direction of Perusahaan Gas i.e., Perusahaan Gas and Kedawung Setia go up and down completely randomly.

Pair Corralation between Perusahaan Gas and Kedawung Setia

Assuming the 90 days trading horizon Perusahaan Gas Negara is expected to under-perform the Kedawung Setia. But the stock apears to be less risky and, when comparing its historical volatility, Perusahaan Gas Negara is 2.12 times less risky than Kedawung Setia. The stock trades about -0.01 of its potential returns per unit of risk. The Kedawung Setia Industrial is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  37,500  in Kedawung Setia Industrial on September 2, 2024 and sell it today you would earn a total of  5,300  from holding Kedawung Setia Industrial or generate 14.13% return on investment over 90 days.

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

Perusahaan Gas Negara  vs.  Kedawung Setia Industrial

Perusahaan Gas Negara

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Perusahaan Gas Negara has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Perusahaan Gas is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Kedawung Setia Industrial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kedawung Setia Industrial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Kedawung Setia disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Perusahaan Gas and Kedawung Setia

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

The idea behind Perusahaan Gas Negara and Kedawung Setia Industrial 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.