Correlation Between Fast Food and Gema Grahasarana

Can any of the company-specific risk be diversified away by investing in both Fast Food and Gema Grahasarana 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 Fast Food and Gema Grahasarana into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Fast Food Indonesia and Gema Grahasarana Tbk, you can compare the effects of market volatilities on Fast Food and Gema Grahasarana 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 Fast Food with a short position of Gema Grahasarana. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fast Food and Gema Grahasarana.

Diversification Opportunities for Fast Food and Gema Grahasarana

0.75

Correlation Coefficient

Fast Food  Gema Grahasarana

Poor diversification

The 3 months correlation between Fast and Gema is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Fast Food Indonesia and Gema Grahasarana Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gema Grahasarana Tbk and Fast Food 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 Fast Food Indonesia are associated (or correlated) with Gema Grahasarana. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gema Grahasarana Tbk has no effect on the direction of Fast Food i.e., Fast Food and Gema Grahasarana go up and down completely randomly.

Pair Corralation between Fast Food and Gema Grahasarana

Assuming the 90 days trading horizon Fast Food Indonesia is expected to under-perform the Gema Grahasarana. But the stock apears to be less risky and, when comparing its historical volatility, Fast Food Indonesia is 1.19 times less risky than Gema Grahasarana. The stock trades about -0.27 of its potential returns per unit of risk. The Gema Grahasarana Tbk is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  26,400  in Gema Grahasarana Tbk on September 12, 2024 and sell it today you would lose (1,600) from holding Gema Grahasarana Tbk or give up 6.06% of portfolio value over 90 days.

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

Fast Food Indonesia  vs.  Gema Grahasarana Tbk

Fast Food Indonesia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fast Food Indonesia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Gema Grahasarana Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gema Grahasarana Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Gema Grahasarana 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 Fast Food and Gema Grahasarana

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

The idea behind Fast Food Indonesia and Gema Grahasarana 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.