Correlation Between Elang Mahkota and Kalbe Farma

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

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

Diversification Opportunities for Elang Mahkota and Kalbe Farma

-0.75

Correlation Coefficient

Elang Mahkota  Kalbe Farma

Pay attention - limited upside

The 3 months correlation between Elang and Kalbe is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Elang Mahkota Teknologi and Kalbe Farma Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kalbe Farma Tbk and Elang Mahkota 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 Elang Mahkota Teknologi are associated (or correlated) with Kalbe Farma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kalbe Farma Tbk has no effect on the direction of Elang Mahkota i.e., Elang Mahkota and Kalbe Farma go up and down completely randomly.

Pair Corralation between Elang Mahkota and Kalbe Farma

Assuming the 90 days trading horizon Elang Mahkota Teknologi is expected to generate 2.46 times more return on investment than Kalbe Farma. However, Elang Mahkota is 2.46 times more volatile than Kalbe Farma Tbk. It trades about 0.16 of its potential returns per unit of risk. Kalbe Farma Tbk is currently generating about -0.17 per unit of risk. If you would invest  40,600  in Elang Mahkota Teknologi on September 16, 2024 and sell it today you would earn a total of  16,900  from holding Elang Mahkota Teknologi or generate 41.63% return on investment over 90 days.

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

Elang Mahkota Teknologi  vs.  Kalbe Farma Tbk

Elang Mahkota Teknologi

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Elang Mahkota Teknologi are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Elang Mahkota disclosed solid returns over the last few months and may actually be approaching a breakup point.

Kalbe Farma Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kalbe Farma 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 January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Elang Mahkota and Kalbe Farma

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

The idea behind Elang Mahkota Teknologi and Kalbe Farma 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.