Correlation Between Matahari Department and Royal Prima

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

Diversification Opportunities for Matahari Department and Royal Prima

0.78

Correlation Coefficient

Matahari Department  Royal Prima

Poor diversification

The 3 months correlation between Matahari and Royal is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Matahari Department Store and Royal Prima PT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Prima PT 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 Royal Prima. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Prima PT has no effect on the direction of Matahari Department i.e., Matahari Department and Royal Prima go up and down completely randomly.

Pair Corralation between Matahari Department and Royal Prima

Assuming the 90 days trading horizon Matahari Department Store is expected to generate 0.54 times more return on investment than Royal Prima. However, Matahari Department Store is 1.85 times less risky than Royal Prima. It trades about 0.08 of its potential returns per unit of risk. Royal Prima PT is currently generating about -0.07 per unit of risk. If you would invest  145,500  in Matahari Department Store on October 11, 2024 and sell it today you would earn a total of  2,500  from holding Matahari Department Store or generate 1.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.74%
Values	Daily Returns

Matahari Department Store  vs.  Royal Prima PT

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 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.

Royal Prima PT

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Matahari Department Store and Royal Prima PT 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.