Correlation Between Elang Mahkota and Digital Mediatama

Can any of the company-specific risk be diversified away by investing in both Elang Mahkota and Digital Mediatama 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 Elang Mahkota and Digital Mediatama into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Elang Mahkota Teknologi and Digital Mediatama Maxima, you can compare the effects of market volatilities on Elang Mahkota and Digital Mediatama 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 Elang Mahkota with a short position of Digital Mediatama. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elang Mahkota and Digital Mediatama.

Diversification Opportunities for Elang Mahkota and Digital Mediatama

0.87

Correlation Coefficient

Elang Mahkota  Digital Mediatama

Very poor diversification

The 3 months correlation between Elang and Digital is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Elang Mahkota Teknologi and Digital Mediatama Maxima in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Mediatama Maxima and Elang Mahkota 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 Elang Mahkota Teknologi are associated (or correlated) with Digital Mediatama. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Mediatama Maxima has no effect on the direction of Elang Mahkota i.e., Elang Mahkota and Digital Mediatama go up and down completely randomly.

Pair Corralation between Elang Mahkota and Digital Mediatama

Assuming the 90 days trading horizon Elang Mahkota Teknologi is expected to under-perform the Digital Mediatama. But the stock apears to be less risky and, when comparing its historical volatility, Elang Mahkota Teknologi is 1.65 times less risky than Digital Mediatama. The stock trades about -0.06 of its potential returns per unit of risk. The Digital Mediatama Maxima is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  23,400  in Digital Mediatama Maxima on September 1, 2024 and sell it today you would lose (1,400) from holding Digital Mediatama Maxima or give up 5.98% of portfolio value over 90 days.

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

Elang Mahkota Teknologi  vs.  Digital Mediatama Maxima

Elang Mahkota Teknologi

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Elang Mahkota Teknologi are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Elang Mahkota disclosed solid returns over the last few months and may actually be approaching a breakup point.

Digital Mediatama Maxima

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Mediatama Maxima are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Digital Mediatama disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Elang Mahkota and Digital Mediatama

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

The idea behind Elang Mahkota Teknologi and Digital Mediatama Maxima 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.