Correlation Between Matahari Department and Merck Tbk

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

Diversification Opportunities for Matahari Department and Merck Tbk

-0.84

Correlation Coefficient

Matahari Department  Merck Tbk

Pay attention - limited upside

The 3 months correlation between Matahari and Merck is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Matahari Department Store and Merck Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck 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 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 Matahari Department i.e., Matahari Department and Merck Tbk go up and down completely randomly.

Pair Corralation between Matahari Department and Merck Tbk

Assuming the 90 days trading horizon Matahari Department Store is expected to generate 1.5 times more return on investment than Merck Tbk. However, Matahari Department is 1.5 times more volatile than Merck Tbk. It trades about 0.26 of its potential returns per unit of risk. Merck Tbk is currently generating about -0.05 per unit of risk. If you would invest  141,500  in Matahari Department Store on December 31, 2024 and sell it today you would earn a total of  51,000  from holding Matahari Department Store or generate 36.04% return on investment over 90 days.

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

Matahari Department Store  vs.  Merck 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 20 (%) 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.

Merck Tbk

Risk-Adjusted Performance

Very Weak

Over the last 90 days Merck Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Merck Tbk 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 Merck Tbk

The main advantage of trading using opposite Matahari Department and Merck Tbk positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Matahari Department 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 Matahari Department Store 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.