Correlation Between Multi Bintang and Merck Tbk

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

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

Diversification Opportunities for Multi Bintang and Merck Tbk

-0.7

Correlation Coefficient

Multi Bintang  Merck Tbk

Excellent diversification

The 3 months correlation between Multi and Merck is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Multi Bintang Indonesia and Merck Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Tbk and Multi Bintang 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 Multi Bintang Indonesia 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 Multi Bintang i.e., Multi Bintang and Merck Tbk go up and down completely randomly.

Pair Corralation between Multi Bintang and Merck Tbk

Assuming the 90 days trading horizon Multi Bintang Indonesia is expected to generate 2.31 times more return on investment than Merck Tbk. However, Multi Bintang is 2.31 times more volatile than Merck Tbk. It trades about 0.07 of its potential returns per unit of risk. Merck Tbk is currently generating about -0.25 per unit of risk. If you would invest  584,888  in Multi Bintang Indonesia on August 31, 2024 and sell it today you would earn a total of  40,112  from holding Multi Bintang Indonesia or generate 6.86% return on investment over 90 days.

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

Multi Bintang Indonesia  vs.  Merck Tbk

Multi Bintang Indonesia

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Multi Bintang Indonesia are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Multi Bintang may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Merck Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck Tbk 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.

Pair Trading with Multi Bintang and Merck Tbk

The main advantage of trading using opposite Multi Bintang and Merck Tbk positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Multi Bintang 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 Multi Bintang Indonesia 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.