Correlation Between United Tractors and Lippo General

Can any of the company-specific risk be diversified away by investing in both United Tractors and Lippo General 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 United Tractors and Lippo General into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between United Tractors Tbk and Lippo General Insurance, you can compare the effects of market volatilities on United Tractors and Lippo General 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 United Tractors with a short position of Lippo General. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Tractors and Lippo General.

Diversification Opportunities for United Tractors and Lippo General

-0.37

Correlation Coefficient

United Tractors  Lippo General

Very good diversification

The 3 months correlation between United and Lippo is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding United Tractors Tbk and Lippo General Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lippo General Insurance and United Tractors 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 United Tractors Tbk are associated (or correlated) with Lippo General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lippo General Insurance has no effect on the direction of United Tractors i.e., United Tractors and Lippo General go up and down completely randomly.

Pair Corralation between United Tractors and Lippo General

Assuming the 90 days trading horizon United Tractors is expected to generate 10.51 times less return on investment than Lippo General. But when comparing it to its historical volatility, United Tractors Tbk is 2.64 times less risky than Lippo General. It trades about 0.02 of its potential returns per unit of risk. Lippo General Insurance is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  31,400  in Lippo General Insurance on September 4, 2024 and sell it today you would earn a total of  6,000  from holding Lippo General Insurance or generate 19.11% return on investment over 90 days.

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

United Tractors Tbk  vs.  Lippo General Insurance

United Tractors Tbk

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in United Tractors Tbk are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, United Tractors is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Lippo General Insurance

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with United Tractors and Lippo General

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

The idea behind United Tractors Tbk and Lippo General Insurance 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.