Correlation Between Gudang Garam and Merck Tbk

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

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

Diversification Opportunities for Gudang Garam and Merck Tbk

0.9

Correlation Coefficient

Gudang Garam  Merck Tbk

Almost no diversification

The 3 months correlation between Gudang and Merck is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Gudang Garam Tbk and Merck Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Tbk and Gudang Garam 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 Gudang Garam Tbk 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 Gudang Garam i.e., Gudang Garam and Merck Tbk go up and down completely randomly.

Pair Corralation between Gudang Garam and Merck Tbk

Assuming the 90 days trading horizon Gudang Garam Tbk is expected to under-perform the Merck Tbk. In addition to that, Gudang Garam is 2.01 times more volatile than Merck Tbk. It trades about -0.15 of its total potential returns per unit of risk. Merck Tbk is currently generating about -0.11 per unit of volatility. If you would invest  380,000  in Merck Tbk on September 16, 2024 and sell it today you would lose (22,000) from holding Merck Tbk or give up 5.79% of portfolio value over 90 days.

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

Gudang Garam Tbk  vs.  Merck Tbk

Gudang Garam Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gudang Garam 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.

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 quite persistent forward-looking signals, Merck Tbk is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Gudang Garam and Merck Tbk

The main advantage of trading using opposite Gudang Garam and Merck Tbk positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gudang Garam 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 Gudang Garam Tbk 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.