Correlation Between PT Indofood and Indo Oil

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

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

Diversification Opportunities for PT Indofood and Indo Oil

-0.38

Correlation Coefficient

PT Indofood  Indo Oil

Very good diversification

The 3 months correlation between INDF and Indo is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding PT Indofood Sukses and Indo Oil Perkasa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indo Oil Perkasa and PT Indofood 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 PT Indofood Sukses are associated (or correlated) with Indo Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indo Oil Perkasa has no effect on the direction of PT Indofood i.e., PT Indofood and Indo Oil go up and down completely randomly.

Pair Corralation between PT Indofood and Indo Oil

Assuming the 90 days trading horizon PT Indofood Sukses is expected to generate 1.07 times more return on investment than Indo Oil. However, PT Indofood is 1.07 times more volatile than Indo Oil Perkasa. It trades about 0.15 of its potential returns per unit of risk. Indo Oil Perkasa is currently generating about -0.03 per unit of risk. If you would invest  710,000  in PT Indofood Sukses on September 15, 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 Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

PT Indofood Sukses  vs.  Indo Oil Perkasa

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.

Indo Oil Perkasa

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indo Oil Perkasa has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Indo Oil 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 PT Indofood and Indo Oil

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

The idea behind PT Indofood Sukses and Indo Oil Perkasa 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.