Correlation Between Matahari Department and Garuda Indonesia

Can any of the company-specific risk be diversified away by investing in both Matahari Department and Garuda Indonesia 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 Matahari Department and Garuda Indonesia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Matahari Department Store and Garuda Indonesia Persero, you can compare the effects of market volatilities on Matahari Department and Garuda Indonesia 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 Matahari Department with a short position of Garuda Indonesia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Matahari Department and Garuda Indonesia.

Diversification Opportunities for Matahari Department and Garuda Indonesia

0.68

Correlation Coefficient

Matahari Department  Garuda Indonesia

Poor diversification

The 3 months correlation between Matahari and Garuda is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Matahari Department Store and Garuda Indonesia Persero in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Garuda Indonesia Persero and Matahari Department 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 Matahari Department Store are associated (or correlated) with Garuda Indonesia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Garuda Indonesia Persero has no effect on the direction of Matahari Department i.e., Matahari Department and Garuda Indonesia go up and down completely randomly.

Pair Corralation between Matahari Department and Garuda Indonesia

Assuming the 90 days trading horizon Matahari Department Store is expected to under-perform the Garuda Indonesia. But the stock apears to be less risky and, when comparing its historical volatility, Matahari Department Store is 1.47 times less risky than Garuda Indonesia. The stock trades about -0.16 of its potential returns per unit of risk. The Garuda Indonesia Persero is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  6,300  in Garuda Indonesia Persero on September 1, 2024 and sell it today you would lose (300.00) from holding Garuda Indonesia Persero or give up 4.76% of portfolio value over 90 days.

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

Matahari Department Store  vs.  Garuda Indonesia Persero

Matahari Department Store

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Matahari Department Store 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.

Garuda Indonesia Persero

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Garuda Indonesia Persero has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Garuda Indonesia 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 Matahari Department and Garuda Indonesia

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

The idea behind Matahari Department Store and Garuda Indonesia Persero 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.