Correlation Between Fast Food and Falmaco Nonwoven

Can any of the company-specific risk be diversified away by investing in both Fast Food and Falmaco Nonwoven 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 Fast Food and Falmaco Nonwoven into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Fast Food Indonesia and Falmaco Nonwoven Industri, you can compare the effects of market volatilities on Fast Food and Falmaco Nonwoven 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 Fast Food with a short position of Falmaco Nonwoven. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fast Food and Falmaco Nonwoven.

Diversification Opportunities for Fast Food and Falmaco Nonwoven

-0.51

Correlation Coefficient

Fast Food  Falmaco Nonwoven

Excellent diversification

The 3 months correlation between Fast and Falmaco is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Fast Food Indonesia and Falmaco Nonwoven Industri in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Falmaco Nonwoven Industri and Fast Food 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 Fast Food Indonesia are associated (or correlated) with Falmaco Nonwoven. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Falmaco Nonwoven Industri has no effect on the direction of Fast Food i.e., Fast Food and Falmaco Nonwoven go up and down completely randomly.

Pair Corralation between Fast Food and Falmaco Nonwoven

Assuming the 90 days trading horizon Fast Food Indonesia is expected to under-perform the Falmaco Nonwoven. But the stock apears to be less risky and, when comparing its historical volatility, Fast Food Indonesia is 2.46 times less risky than Falmaco Nonwoven. The stock trades about -0.25 of its potential returns per unit of risk. The Falmaco Nonwoven Industri is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  8,800  in Falmaco Nonwoven Industri on September 15, 2024 and sell it today you would lose (500.00) from holding Falmaco Nonwoven Industri or give up 5.68% of portfolio value over 90 days.

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

Fast Food Indonesia  vs.  Falmaco Nonwoven Industri

Fast Food Indonesia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fast Food Indonesia 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.

Falmaco Nonwoven Industri

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Falmaco Nonwoven Industri has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Falmaco Nonwoven is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Fast Food and Falmaco Nonwoven

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

The idea behind Fast Food Indonesia and Falmaco Nonwoven Industri 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.