Correlation Between First Media and Indonesian Tobacco

Can any of the company-specific risk be diversified away by investing in both First Media and Indonesian Tobacco 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 First Media and Indonesian Tobacco into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for First Media and Indonesian Tobacco

-0.4

Correlation Coefficient

First Media  Indonesian Tobacco

Very good diversification

The 3 months correlation between First and Indonesian is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding First Media Tbk and Indonesian Tobacco Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indonesian Tobacco Tbk and First Media 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 First Media Tbk are associated (or correlated) with Indonesian Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indonesian Tobacco Tbk has no effect on the direction of First Media i.e., First Media and Indonesian Tobacco go up and down completely randomly.

Pair Corralation between First Media and Indonesian Tobacco

Assuming the 90 days trading horizon First Media Tbk is expected to generate 0.98 times more return on investment than Indonesian Tobacco. However, First Media Tbk is 1.02 times less risky than Indonesian Tobacco. It trades about 0.0 of its potential returns per unit of risk. Indonesian Tobacco Tbk is currently generating about -0.08 per unit of risk. If you would invest  9,000  in First Media Tbk on December 29, 2024 and sell it today you would lose (100.00) from holding First Media Tbk or give up 1.11% of portfolio value over 90 days.

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

First Media Tbk  vs.  Indonesian Tobacco Tbk

First Media Tbk

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Media Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, First Media is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Indonesian Tobacco Tbk

Risk-Adjusted Performance

Very Weak

Over the last 90 days Indonesian Tobacco 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 First Media and Indonesian Tobacco

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

The idea behind First Media Tbk and Indonesian Tobacco 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.