ABSTRACT
This paper tries to analyze the relationship between the Islamic and composite index by using the VECM method. The result shows that there is a co-integration among the variables of the Jakarta Composite Index (JCI) and Jakarta Islamic Index (JII). Furthermore, the results show JII and JCI indicate having a negative correlation. JII significantly affects JCI, while JII was significantly influenced by JCI in lag 2 and JII in lag 1. The results of this study indicate a negative correlation between two variables. In the context of diversification, this measure explains the extent to which the return index of a security is related to others. If the correlation was negative, investors could make portfolio between the Islamic and conventional but they could not completely eliminate this portfolio risk. For investors, the results will give them choices for their investment portfolio.
