Correlation Between Merck Tbk and Kimia Farma

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

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

Diversification Opportunities for Merck Tbk and Kimia Farma

0.89

Correlation Coefficient

Merck Tbk  Kimia Farma

Very poor diversification

The 3 months correlation between Merck and Kimia is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Merck Tbk and Kimia Farma Persero in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kimia Farma Persero and Merck Tbk 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 Merck Tbk are associated (or correlated) with Kimia Farma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kimia Farma Persero has no effect on the direction of Merck Tbk i.e., Merck Tbk and Kimia Farma go up and down completely randomly.

Pair Corralation between Merck Tbk and Kimia Farma

Assuming the 90 days trading horizon Merck Tbk is expected to generate 0.39 times more return on investment than Kimia Farma. However, Merck Tbk is 2.55 times less risky than Kimia Farma. It trades about -0.11 of its potential returns per unit of risk. Kimia Farma Persero is currently generating about -0.11 per unit of risk. If you would invest  380,000  in Merck Tbk on September 15, 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	Strong
Accuracy	100.0%
Values	Daily Returns

Merck Tbk  vs.  Kimia Farma Persero

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.

Kimia Farma Persero

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kimia Farma Persero 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 Merck Tbk and Kimia Farma

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

The idea behind Merck Tbk and Kimia Farma Persero 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.