Correlation Between Fast Food and First Media

Can any of the company-specific risk be diversified away by investing in both Fast Food and First Media 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 First Media 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 First Media Tbk, you can compare the effects of market volatilities on Fast Food and First Media 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 First Media. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fast Food and First Media.

Diversification Opportunities for Fast Food and First Media

-0.9

Correlation Coefficient

Fast Food  First Media

Pay attention - limited upside

The 3 months correlation between Fast and First is -0.9. Overlapping area represents the amount of risk that can be diversified away by holding Fast Food Indonesia and First Media Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Media 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 First Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Media Tbk has no effect on the direction of Fast Food i.e., Fast Food and First Media go up and down completely randomly.

Pair Corralation between Fast Food and First Media

Assuming the 90 days trading horizon Fast Food Indonesia is expected to generate 1.41 times more return on investment than First Media. However, Fast Food is 1.41 times more volatile than First Media Tbk. It trades about -0.11 of its potential returns per unit of risk. First Media Tbk is currently generating about -0.23 per unit of risk. If you would invest  32,600  in Fast Food Indonesia on September 17, 2024 and sell it today you would lose (1,400) from holding Fast Food Indonesia or give up 4.29% of portfolio value over 90 days.

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

Fast Food Indonesia  vs.  First Media 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.

First Media Tbk

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Media Tbk are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, First Media disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fast Food and First Media

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

The idea behind Fast Food Indonesia and First Media 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .