Correlation Between NFC Indonesia and Digital Mediatama

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

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

Diversification Opportunities for NFC Indonesia and Digital Mediatama

0.61

Correlation Coefficient

NFC Indonesia  Digital Mediatama

Poor diversification

The 3 months correlation between NFC and Digital is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding NFC Indonesia PT and Digital Mediatama Maxima in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Mediatama Maxima and NFC Indonesia 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 NFC Indonesia PT are associated (or correlated) with Digital Mediatama. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Mediatama Maxima has no effect on the direction of NFC Indonesia i.e., NFC Indonesia and Digital Mediatama go up and down completely randomly.

Pair Corralation between NFC Indonesia and Digital Mediatama

Assuming the 90 days trading horizon NFC Indonesia is expected to generate 7.08 times less return on investment than Digital Mediatama. But when comparing it to its historical volatility, NFC Indonesia PT is 1.48 times less risky than Digital Mediatama. It trades about 0.02 of its potential returns per unit of risk. Digital Mediatama Maxima is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  23,800  in Digital Mediatama Maxima on December 1, 2024 and sell it today you would earn a total of  7,200  from holding Digital Mediatama Maxima or generate 30.25% return on investment over 90 days.

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

NFC Indonesia PT  vs.  Digital Mediatama Maxima

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.

Digital Mediatama Maxima

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Mediatama Maxima are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Digital Mediatama disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NFC Indonesia and Digital Mediatama

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

The idea behind NFC Indonesia PT and Digital Mediatama Maxima 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.

Check out your portfolio center.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.