Correlation Between Matahari Department and Link Net

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

Diversification Opportunities for Matahari Department and Link Net

0.32

Correlation Coefficient

Matahari Department  Link Net

Weak diversification

The 3 months correlation between Matahari and Link is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Matahari Department Store and Link Net Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Link Net Tbk 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 Link Net. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Link Net Tbk has no effect on the direction of Matahari Department i.e., Matahari Department and Link Net go up and down completely randomly.

Pair Corralation between Matahari Department and Link Net

Assuming the 90 days trading horizon Matahari Department is expected to generate 1.55 times less return on investment than Link Net. But when comparing it to its historical volatility, Matahari Department Store is 3.14 times less risky than Link Net. It trades about 0.27 of its potential returns per unit of risk. Link Net Tbk is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  120,000  in Link Net Tbk on December 30, 2024 and sell it today you would earn a total of  58,500  from holding Link Net Tbk or generate 48.75% return on investment over 90 days.

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

Matahari Department Store  vs.  Link Net Tbk

Matahari Department Store

Risk-Adjusted Performance

Solid

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

Link Net Tbk

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Link Net Tbk are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Link Net disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Matahari Department and Link Net

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

The idea behind Matahari Department Store and Link Net 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.