Correlation Between Garuda Metalindo and First Media

Can any of the company-specific risk be diversified away by investing in both Garuda Metalindo and First Media 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 Garuda Metalindo and First Media into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Garuda Metalindo and First Media

0.46

Correlation Coefficient

Garuda Metalindo  First Media

Very weak diversification

The 3 months correlation between Garuda and First is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Garuda Metalindo Tbk and First Media Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Media Tbk and Garuda Metalindo 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 Garuda Metalindo Tbk are associated (or correlated) with First Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Media Tbk has no effect on the direction of Garuda Metalindo i.e., Garuda Metalindo and First Media go up and down completely randomly.

Pair Corralation between Garuda Metalindo and First Media

Assuming the 90 days trading horizon Garuda Metalindo is expected to generate 2.0 times less return on investment than First Media. But when comparing it to its historical volatility, Garuda Metalindo Tbk is 1.53 times less risky than First Media. It trades about 0.21 of its potential returns per unit of risk. First Media Tbk is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  6,100  in First Media Tbk on September 17, 2024 and sell it today you would earn a total of  3,400  from holding First Media Tbk or generate 55.74% return on investment over 90 days.

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

Garuda Metalindo Tbk  vs.  First Media Tbk

Garuda Metalindo Tbk

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Garuda Metalindo Tbk are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Garuda Metalindo disclosed solid returns over the last few months and may actually be approaching a breakup point.

First Media Tbk

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Media Tbk are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, First Media disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Garuda Metalindo and First Media

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

The idea behind Garuda Metalindo Tbk and First Media 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.

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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.