Correlation Between State Bank and Indo Rama

Can any of the company-specific risk be diversified away by investing in both State Bank and Indo Rama 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 State Bank and Indo Rama into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between State Bank of and Indo Rama Synthetics, you can compare the effects of market volatilities on State Bank and Indo Rama 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 State Bank with a short position of Indo Rama. Check out your portfolio center. Please also check ongoing floating volatility patterns of State Bank and Indo Rama.

Diversification Opportunities for State Bank and Indo Rama

0.19

Correlation Coefficient

State Bank  Indo Rama

Average diversification

The 3 months correlation between State and Indo is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding State Bank of and Indo Rama Synthetics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indo Rama Synthetics and State Bank 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 State Bank of are associated (or correlated) with Indo Rama. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indo Rama Synthetics has no effect on the direction of State Bank i.e., State Bank and Indo Rama go up and down completely randomly.

Pair Corralation between State Bank and Indo Rama

Assuming the 90 days trading horizon State Bank of is expected to generate 0.4 times more return on investment than Indo Rama. However, State Bank of is 2.52 times less risky than Indo Rama. It trades about -0.09 of its potential returns per unit of risk. Indo Rama Synthetics is currently generating about -0.04 per unit of risk. If you would invest  81,205  in State Bank of on December 24, 2024 and sell it today you would lose (5,885) from holding State Bank of or give up 7.25% of portfolio value over 90 days.

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

State Bank of  vs.  Indo Rama Synthetics

State Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days State Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Indo Rama Synthetics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Indo Rama Synthetics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with State Bank and Indo Rama

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

The idea behind State Bank of and Indo Rama Synthetics 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.