Correlation Between Kawasan Industri and Bank Danamon

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

By analyzing existing cross correlation between Kawasan Industri Jababeka and Bank Danamon Indonesia, you can compare the effects of market volatilities on Kawasan Industri and Bank Danamon 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 Kawasan Industri with a short position of Bank Danamon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kawasan Industri and Bank Danamon.

Diversification Opportunities for Kawasan Industri and Bank Danamon

-0.43

Correlation Coefficient

Kawasan Industri  Bank Danamon

Very good diversification

The 3 months correlation between Kawasan and Bank is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Kawasan Industri Jababeka and Bank Danamon Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Danamon Indonesia and Kawasan Industri 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 Kawasan Industri Jababeka are associated (or correlated) with Bank Danamon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Danamon Indonesia has no effect on the direction of Kawasan Industri i.e., Kawasan Industri and Bank Danamon go up and down completely randomly.

Pair Corralation between Kawasan Industri and Bank Danamon

Assuming the 90 days trading horizon Kawasan Industri Jababeka is expected to generate 1.77 times more return on investment than Bank Danamon. However, Kawasan Industri is 1.77 times more volatile than Bank Danamon Indonesia. It trades about 0.13 of its potential returns per unit of risk. Bank Danamon Indonesia is currently generating about -0.01 per unit of risk. If you would invest  12,700  in Kawasan Industri Jababeka on September 7, 2024 and sell it today you would earn a total of  7,700  from holding Kawasan Industri Jababeka or generate 60.63% return on investment over 90 days.

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

Kawasan Industri Jababeka  vs.  Bank Danamon Indonesia

Kawasan Industri Jababeka

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kawasan Industri Jababeka are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Kawasan Industri disclosed solid returns over the last few months and may actually be approaching a breakup point.

Bank Danamon Indonesia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank Danamon Indonesia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Bank Danamon is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Kawasan Industri and Bank Danamon

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

The idea behind Kawasan Industri Jababeka and Bank Danamon Indonesia 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.