Correlation Between Capital Financial and PT Indofood

Can any of the company-specific risk be diversified away by investing in both Capital Financial and PT Indofood 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 Capital Financial and PT Indofood into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Capital Financial Indonesia and PT Indofood Sukses, you can compare the effects of market volatilities on Capital Financial and PT Indofood 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 Capital Financial with a short position of PT Indofood. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Financial and PT Indofood.

Diversification Opportunities for Capital Financial and PT Indofood

0.63

Correlation Coefficient

Capital Financial  PT Indofood

Poor diversification

The 3 months correlation between Capital and INDF is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Capital Financial Indonesia and PT Indofood Sukses in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Indofood Sukses and Capital Financial 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 Capital Financial Indonesia are associated (or correlated) with PT Indofood. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Indofood Sukses has no effect on the direction of Capital Financial i.e., Capital Financial and PT Indofood go up and down completely randomly.

Pair Corralation between Capital Financial and PT Indofood

Assuming the 90 days trading horizon Capital Financial is expected to generate 2.82 times less return on investment than PT Indofood. In addition to that, Capital Financial is 1.72 times more volatile than PT Indofood Sukses. It trades about 0.03 of its total potential returns per unit of risk. PT Indofood Sukses is currently generating about 0.15 per unit of volatility. If you would invest  710,000  in PT Indofood Sukses on September 17, 2024 and sell it today you would earn a total of  102,500  from holding PT Indofood Sukses or generate 14.44% return on investment over 90 days.

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

Capital Financial Indonesia  vs.  PT Indofood Sukses

Capital Financial

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Financial Indonesia are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Capital Financial is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

PT Indofood Sukses

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PT Indofood Sukses are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, PT Indofood disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capital Financial and PT Indofood

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

The idea behind Capital Financial Indonesia and PT Indofood Sukses 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.