Correlation Between First Media and Arkadia Digital

Can any of the company-specific risk be diversified away by investing in both First Media and Arkadia Digital 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 Arkadia Digital 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 Arkadia Digital Media, you can compare the effects of market volatilities on First Media and Arkadia Digital 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 Arkadia Digital. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Media and Arkadia Digital.

Diversification Opportunities for First Media and Arkadia Digital

-0.7

Correlation Coefficient

First Media  Arkadia Digital

Excellent diversification

The 3 months correlation between First and Arkadia is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding First Media Tbk and Arkadia Digital Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arkadia Digital Media 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 Arkadia Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arkadia Digital Media has no effect on the direction of First Media i.e., First Media and Arkadia Digital go up and down completely randomly.

Pair Corralation between First Media and Arkadia Digital

Assuming the 90 days trading horizon First Media Tbk is expected to generate 0.93 times more return on investment than Arkadia Digital. However, First Media Tbk is 1.07 times less risky than Arkadia Digital. It trades about 0.39 of its potential returns per unit of risk. Arkadia Digital Media is currently generating about -0.12 per unit of risk. If you would invest  4,800  in First Media Tbk on September 3, 2024 and sell it today you would earn a total of  4,900  from holding First Media Tbk or generate 102.08% return on investment over 90 days.

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

First Media Tbk  vs.  Arkadia Digital Media

First Media Tbk

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in First Media Tbk are ranked lower than 30 (%) 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.

Arkadia Digital Media

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arkadia Digital Media 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 First Media and Arkadia Digital

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

The idea behind First Media Tbk and Arkadia Digital Media 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.