Correlation Between PT Steel and JAPAN AIRLINES

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

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

Diversification Opportunities for PT Steel and JAPAN AIRLINES

-0.3

Correlation Coefficient

PT Steel  JAPAN AIRLINES

Very good diversification

The 3 months correlation between S08 and JAPAN is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding PT Steel Pipe and JAPAN AIRLINES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JAPAN AIRLINES and PT Steel 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 PT Steel Pipe are associated (or correlated) with JAPAN AIRLINES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JAPAN AIRLINES has no effect on the direction of PT Steel i.e., PT Steel and JAPAN AIRLINES go up and down completely randomly.

Pair Corralation between PT Steel and JAPAN AIRLINES

Assuming the 90 days horizon PT Steel Pipe is expected to generate 4.91 times more return on investment than JAPAN AIRLINES. However, PT Steel is 4.91 times more volatile than JAPAN AIRLINES. It trades about 0.03 of its potential returns per unit of risk. JAPAN AIRLINES is currently generating about -0.03 per unit of risk. If you would invest  1.20  in PT Steel Pipe on October 24, 2024 and sell it today you would lose (0.05) from holding PT Steel Pipe or give up 4.17% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.76%
Values	Daily Returns

PT Steel Pipe  vs.  JAPAN AIRLINES

PT Steel Pipe

Risk-Adjusted Performance

0 of 100

Very Weak

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

JAPAN AIRLINES

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in JAPAN AIRLINES are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, JAPAN AIRLINES is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with PT Steel and JAPAN AIRLINES

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

The idea behind PT Steel Pipe and JAPAN AIRLINES 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.