Correlation Between Kimia Farma and Merck Tbk

Can any of the company-specific risk be diversified away by investing in both Kimia Farma and Merck Tbk 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 Kimia Farma and Merck Tbk into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Kimia Farma Persero and Merck Tbk, you can compare the effects of market volatilities on Kimia Farma and Merck Tbk 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 Kimia Farma with a short position of Merck Tbk. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kimia Farma and Merck Tbk.

Diversification Opportunities for Kimia Farma and Merck Tbk

0.88

Correlation Coefficient

Kimia Farma  Merck Tbk

Very poor diversification

The 3 months correlation between Kimia and Merck is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Kimia Farma Persero and Merck Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Tbk and Kimia Farma 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 Kimia Farma Persero are associated (or correlated) with Merck Tbk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Tbk has no effect on the direction of Kimia Farma i.e., Kimia Farma and Merck Tbk go up and down completely randomly.

Pair Corralation between Kimia Farma and Merck Tbk

Assuming the 90 days trading horizon Kimia Farma Persero is expected to under-perform the Merck Tbk. In addition to that, Kimia Farma is 4.57 times more volatile than Merck Tbk. It trades about -0.03 of its total potential returns per unit of risk. Merck Tbk is currently generating about -0.07 per unit of volatility. If you would invest  369,524  in Merck Tbk on September 3, 2024 and sell it today you would lose (26,524) from holding Merck Tbk or give up 7.18% of portfolio value over 90 days.

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

Kimia Farma Persero  vs.  Merck Tbk

Kimia Farma Persero

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kimia Farma Persero 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.

Merck Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Kimia Farma and Merck Tbk

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

The idea behind Kimia Farma Persero and Merck 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..