Correlation Between First Media and Weha Transportasi

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

Diversification Opportunities for First Media and Weha Transportasi

-0.55

Correlation Coefficient

First Media  Weha Transportasi

Excellent diversification

The 3 months correlation between First and Weha is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding First Media Tbk and Weha Transportasi Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Weha Transportasi 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 Weha Transportasi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Weha Transportasi has no effect on the direction of First Media i.e., First Media and Weha Transportasi go up and down completely randomly.

Pair Corralation between First Media and Weha Transportasi

Assuming the 90 days trading horizon First Media Tbk is expected to generate 1.52 times more return on investment than Weha Transportasi. However, First Media is 1.52 times more volatile than Weha Transportasi Indonesia. It trades about 0.34 of its potential returns per unit of risk. Weha Transportasi Indonesia is currently generating about -0.3 per unit of risk. If you would invest  6,200  in First Media Tbk on September 17, 2024 and sell it today you would earn a total of  3,300  from holding First Media Tbk or generate 53.23% return on investment over 90 days.

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

First Media Tbk  vs.  Weha Transportasi Indonesia

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.

Weha Transportasi

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Weha Transportasi Indonesia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with First Media and Weha Transportasi

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

The idea behind First Media Tbk and Weha Transportasi Indonesia 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.