Correlation Between IDX 30 and Reliance Securities

Can any of the company-specific risk be diversified away by investing in both IDX 30 and Reliance Securities 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 IDX 30 and Reliance Securities into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between IDX 30 Jakarta and Reliance Securities Tbk, you can compare the effects of market volatilities on IDX 30 and Reliance Securities 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 IDX 30 with a short position of Reliance Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of IDX 30 and Reliance Securities.

Diversification Opportunities for IDX 30 and Reliance Securities

0.06

Correlation Coefficient

IDX 30  Reliance Securities

Significant diversification

The 3 months correlation between IDX and Reliance is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding IDX 30 Jakarta and Reliance Securities Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Securities Tbk and IDX 30 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 IDX 30 Jakarta are associated (or correlated) with Reliance Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Securities Tbk has no effect on the direction of IDX 30 i.e., IDX 30 and Reliance Securities go up and down completely randomly.

Pair Corralation between IDX 30 and Reliance Securities

Assuming the 90 days trading horizon IDX 30 Jakarta is expected to under-perform the Reliance Securities. In addition to that, IDX 30 is 2.03 times more volatile than Reliance Securities Tbk. It trades about -0.17 of its total potential returns per unit of risk. Reliance Securities Tbk is currently generating about -0.24 per unit of volatility. If you would invest  48,000  in Reliance Securities Tbk on January 31, 2024 and sell it today you would lose (1,200) from holding Reliance Securities Tbk or give up 2.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	93.75%
Values	Daily Returns

IDX 30 Jakarta  vs.  Reliance Securities Tbk

Pair Trading with IDX 30 and Reliance Securities

The main advantage of trading using opposite IDX 30 and Reliance Securities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IDX 30 position performs unexpectedly, Reliance Securities 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 Reliance Securities will offset losses from the drop in Reliance Securities' long position.

The idea behind IDX 30 Jakarta and Reliance Securities Tbk 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.