Correlation Between Red Planet and PAM Mineral

Can any of the company-specific risk be diversified away by investing in both Red Planet and PAM Mineral 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 Red Planet and PAM Mineral into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Red Planet Indonesia and PAM Mineral Tbk, you can compare the effects of market volatilities on Red Planet and PAM Mineral 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 Red Planet with a short position of PAM Mineral. Check out your portfolio center. Please also check ongoing floating volatility patterns of Red Planet and PAM Mineral.

Diversification Opportunities for Red Planet and PAM Mineral

0.4

Correlation Coefficient

Red Planet  PAM Mineral

Very weak diversification

The 3 months correlation between Red and PAM is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Red Planet Indonesia and PAM Mineral Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PAM Mineral Tbk and Red Planet 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 Red Planet Indonesia are associated (or correlated) with PAM Mineral. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PAM Mineral Tbk has no effect on the direction of Red Planet i.e., Red Planet and PAM Mineral go up and down completely randomly.

Pair Corralation between Red Planet and PAM Mineral

Assuming the 90 days trading horizon Red Planet Indonesia is expected to generate 2.17 times more return on investment than PAM Mineral. However, Red Planet is 2.17 times more volatile than PAM Mineral Tbk. It trades about 0.06 of its potential returns per unit of risk. PAM Mineral Tbk is currently generating about 0.1 per unit of risk. If you would invest  3,200  in Red Planet Indonesia on December 26, 2024 and sell it today you would earn a total of  400.00  from holding Red Planet Indonesia or generate 12.5% return on investment over 90 days.

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

Red Planet Indonesia  vs.  PAM Mineral Tbk

Red Planet Indonesia

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Red Planet Indonesia are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Red Planet disclosed solid returns over the last few months and may actually be approaching a breakup point.

PAM Mineral Tbk

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PAM Mineral Tbk are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, PAM Mineral disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Red Planet and PAM Mineral

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

The idea behind Red Planet Indonesia and PAM Mineral Tbk 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.