Correlation Between Sentral Mitra and NFC Indonesia

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

By analyzing existing cross correlation between Sentral Mitra Informatika and NFC Indonesia PT, you can compare the effects of market volatilities on Sentral Mitra and NFC 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 Sentral Mitra with a short position of NFC Indonesia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sentral Mitra and NFC Indonesia.

Diversification Opportunities for Sentral Mitra and NFC Indonesia

-0.45

Correlation Coefficient

Sentral Mitra  NFC Indonesia

Very good diversification

The 3 months correlation between Sentral and NFC is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Sentral Mitra Informatika and NFC Indonesia PT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NFC Indonesia PT and Sentral Mitra 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 Sentral Mitra Informatika are associated (or correlated) with NFC Indonesia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NFC Indonesia PT has no effect on the direction of Sentral Mitra i.e., Sentral Mitra and NFC Indonesia go up and down completely randomly.

Pair Corralation between Sentral Mitra and NFC Indonesia

Assuming the 90 days trading horizon Sentral Mitra is expected to generate 1.01 times less return on investment than NFC Indonesia. But when comparing it to its historical volatility, Sentral Mitra Informatika is 1.49 times less risky than NFC Indonesia. It trades about 0.03 of its potential returns per unit of risk. NFC Indonesia PT is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  122,500  in NFC Indonesia PT on December 1, 2024 and sell it today you would earn a total of  1,000.00  from holding NFC Indonesia PT or generate 0.82% return on investment over 90 days.

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

Sentral Mitra Informatika  vs.  NFC Indonesia PT

Sentral Mitra Informatika

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sentral Mitra Informatika are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Sentral Mitra is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

NFC Indonesia PT

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NFC Indonesia PT are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, NFC 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 Sentral Mitra and NFC Indonesia

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

The idea behind Sentral Mitra Informatika and NFC Indonesia 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.