Correlation Between Iridium Communications and PT Indofood

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

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

Diversification Opportunities for Iridium Communications and PT Indofood

0.13

Correlation Coefficient

Iridium Communications  PT Indofood

Average diversification

The 3 months correlation between Iridium and PIFMF is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Iridium Communications 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 Iridium Communications 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 Iridium Communications 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 Iridium Communications i.e., Iridium Communications and PT Indofood go up and down completely randomly.

Pair Corralation between Iridium Communications and PT Indofood

Given the investment horizon of 90 days Iridium Communications is expected to under-perform the PT Indofood. In addition to that, Iridium Communications is 1.5 times more volatile than PT Indofood Sukses. It trades about -0.04 of its total potential returns per unit of risk. PT Indofood Sukses is currently generating about -0.02 per unit of volatility. If you would invest  45.00  in PT Indofood Sukses on September 26, 2024 and sell it today you would lose (6.00) from holding PT Indofood Sukses or give up 13.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	76.21%
Values	Daily Returns

Iridium Communications  vs.  PT Indofood Sukses

Iridium Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iridium Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Iridium Communications is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

PT Indofood Sukses

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PT Indofood Sukses has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, PT Indofood is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Iridium Communications and PT Indofood

The main advantage of trading using opposite Iridium Communications and PT Indofood positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iridium Communications 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 Iridium Communications 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.