Correlation Between Merck Tbk and Matahari Department

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

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

Diversification Opportunities for Merck Tbk and Matahari Department

-0.84

Correlation Coefficient

Merck Tbk  Matahari Department

Pay attention - limited upside

The 3 months correlation between Merck and Matahari is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Merck Tbk and Matahari Department Store in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matahari Department Store and Merck Tbk 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 Merck Tbk are associated (or correlated) with Matahari Department. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Matahari Department Store has no effect on the direction of Merck Tbk i.e., Merck Tbk and Matahari Department go up and down completely randomly.

Pair Corralation between Merck Tbk and Matahari Department

Assuming the 90 days trading horizon Merck Tbk is expected to under-perform the Matahari Department. But the stock apears to be less risky and, when comparing its historical volatility, Merck Tbk is 1.5 times less risky than Matahari Department. The stock trades about -0.05 of its potential returns per unit of risk. The Matahari Department Store is currently generating about 0.26 of returns per unit of risk over similar time horizon. 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

Merck Tbk  vs.  Matahari Department Store

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.

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.

Pair Trading with Merck Tbk and Matahari Department

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

The idea behind Merck Tbk and Matahari Department Store 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.