Correlation Between Mustika Ratu and Kimia Farma

Can any of the company-specific risk be diversified away by investing in both Mustika Ratu and Kimia Farma 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 Mustika Ratu and Kimia Farma into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Mustika Ratu Tbk and Kimia Farma Persero, you can compare the effects of market volatilities on Mustika Ratu and Kimia Farma 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 Mustika Ratu with a short position of Kimia Farma. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mustika Ratu and Kimia Farma.

Diversification Opportunities for Mustika Ratu and Kimia Farma

0.83

Correlation Coefficient

Mustika Ratu  Kimia Farma

Very poor diversification

The 3 months correlation between Mustika and Kimia is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Mustika Ratu Tbk and Kimia Farma Persero in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kimia Farma Persero and Mustika Ratu 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 Mustika Ratu Tbk are associated (or correlated) with Kimia Farma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kimia Farma Persero has no effect on the direction of Mustika Ratu i.e., Mustika Ratu and Kimia Farma go up and down completely randomly.

Pair Corralation between Mustika Ratu and Kimia Farma

Assuming the 90 days trading horizon Mustika Ratu Tbk is expected to under-perform the Kimia Farma. But the stock apears to be less risky and, when comparing its historical volatility, Mustika Ratu Tbk is 1.14 times less risky than Kimia Farma. The stock trades about -0.29 of its potential returns per unit of risk. The Kimia Farma Persero is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  74,500  in Kimia Farma Persero on September 1, 2024 and sell it today you would lose (14,000) from holding Kimia Farma Persero or give up 18.79% of portfolio value over 90 days.

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

Mustika Ratu Tbk  vs.  Kimia Farma Persero

Mustika Ratu Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mustika Ratu Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in December 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Kimia Farma Persero

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kimia Farma Persero has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in December 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Mustika Ratu and Kimia Farma

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

The idea behind Mustika Ratu Tbk and Kimia Farma Persero 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.