Correlation Between Resource Alam and Radiant Utama
Can any of the company-specific risk be diversified away by investing in both Resource Alam and Radiant Utama 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 Resource Alam and Radiant Utama into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Resource Alam Indonesia and Radiant Utama Interinsco, you can compare the effects of market volatilities on Resource Alam and Radiant Utama 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 Resource Alam with a short position of Radiant Utama. Check out your portfolio center. Please also check ongoing floating volatility patterns of Resource Alam and Radiant Utama.
Diversification Opportunities for Resource Alam and Radiant Utama
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Resource and Radiant is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Resource Alam Indonesia and Radiant Utama Interinsco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Radiant Utama Interinsco and Resource Alam 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 Resource Alam Indonesia are associated (or correlated) with Radiant Utama. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Radiant Utama Interinsco has no effect on the direction of Resource Alam i.e., Resource Alam and Radiant Utama go up and down completely randomly.
Pair Corralation between Resource Alam and Radiant Utama
Assuming the 90 days trading horizon Resource Alam Indonesia is expected to under-perform the Radiant Utama. In addition to that, Resource Alam is 2.4 times more volatile than Radiant Utama Interinsco. It trades about -0.14 of its total potential returns per unit of risk. Radiant Utama Interinsco is currently generating about -0.25 per unit of volatility. If you would invest 18,000 in Radiant Utama Interinsco on August 29, 2024 and sell it today you would lose (900.00) from holding Radiant Utama Interinsco or give up 5.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Resource Alam Indonesia vs. Radiant Utama Interinsco
Performance |
| Timeline |
| Resource Alam Indonesia |
| Radiant Utama Interinsco |
Resource Alam and Radiant Utama Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Resource Alam and Radiant Utama
The main advantage of trading using opposite Resource Alam and Radiant Utama positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Resource Alam position performs unexpectedly, Radiant Utama 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 Radiant Utama will offset losses from the drop in Radiant Utama's long position.The idea behind Resource Alam Indonesia and Radiant Utama Interinsco 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.Check out your portfolio center.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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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