Correlation Between Alphabet and PT Indofood

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

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

Diversification Opportunities for Alphabet and PT Indofood

0.74

Correlation Coefficient

Alphabet  PT Indofood

Poor diversification

The 3 months correlation between Alphabet and ISM is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C 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 Alphabet 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 Alphabet Inc Class C 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 Alphabet i.e., Alphabet and PT Indofood go up and down completely randomly.

Pair Corralation between Alphabet and PT Indofood

Given the investment horizon of 90 days Alphabet is expected to generate 2.16 times less return on investment than PT Indofood. But when comparing it to its historical volatility, Alphabet Inc Class C is 2.2 times less risky than PT Indofood. It trades about 0.09 of its potential returns per unit of risk. PT Indofood Sukses is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  38.00  in PT Indofood Sukses on August 31, 2024 and sell it today you would earn a total of  6.00  from holding PT Indofood Sukses or generate 15.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Alphabet Inc Class C  vs.  PT Indofood Sukses

Alphabet Class C

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Alphabet may actually be approaching a critical reversion point that can send shares even higher in December 2024.

PT Indofood Sukses

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PT Indofood Sukses are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PT Indofood reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alphabet and PT Indofood

The main advantage of trading using opposite Alphabet and PT Indofood positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet 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 Alphabet Inc Class C 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.