Correlation Between Kimia Farma and Mustika Ratu

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

Diversification Opportunities for Kimia Farma and Mustika Ratu

0.83

Correlation Coefficient

Kimia Farma  Mustika Ratu

Very poor diversification

The 3 months correlation between Kimia and Mustika is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Kimia Farma Persero and Mustika Ratu Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mustika Ratu 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 Mustika Ratu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mustika Ratu Tbk has no effect on the direction of Kimia Farma i.e., Kimia Farma and Mustika Ratu go up and down completely randomly.

Pair Corralation between Kimia Farma and Mustika Ratu

Assuming the 90 days trading horizon Kimia Farma Persero is expected to generate 0.76 times more return on investment than Mustika Ratu. However, Kimia Farma Persero is 1.32 times less risky than Mustika Ratu. It trades about -0.35 of its potential returns per unit of risk. Mustika Ratu Tbk is currently generating about -0.28 per unit of risk. If you would invest  69,000  in Kimia Farma Persero on September 1, 2024 and sell it today you would lose (8,500) from holding Kimia Farma Persero or give up 12.32% 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.  Mustika Ratu 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 December 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Mustika Ratu Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mustika Ratu Tbk 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 December 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Kimia Farma and Mustika Ratu

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

The idea behind Kimia Farma Persero and Mustika Ratu 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.