Correlation Between First Media and Garuda Metalindo

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

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

Diversification Opportunities for First Media and Garuda Metalindo

0.46

Correlation Coefficient

First Media  Garuda Metalindo

Very weak diversification

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

Pair Corralation between First Media and Garuda Metalindo

Assuming the 90 days trading horizon First Media Tbk is expected to generate 1.53 times more return on investment than Garuda Metalindo. However, First Media is 1.53 times more volatile than Garuda Metalindo Tbk. It trades about 0.27 of its potential returns per unit of risk. Garuda Metalindo Tbk is currently generating about 0.21 per unit of risk. 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

First Media Tbk  vs.  Garuda Metalindo Tbk

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.

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.

Pair Trading with First Media and Garuda Metalindo

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

The idea behind First Media Tbk and Garuda Metalindo 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.