Correlation Between PT Indofood and EBRO FOODS

Can any of the company-specific risk be diversified away by investing in both PT Indofood and EBRO FOODS 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 EBRO FOODS 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 EBRO FOODS, you can compare the effects of market volatilities on PT Indofood and EBRO FOODS 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 EBRO FOODS. Check out your portfolio center. Please also check ongoing floating volatility patterns of PT Indofood and EBRO FOODS.

Diversification Opportunities for PT Indofood and EBRO FOODS

0.23

Correlation Coefficient

PT Indofood  EBRO FOODS

Modest diversification

The 3 months correlation between ISM and EBRO is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding PT Indofood Sukses and EBRO FOODS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EBRO FOODS 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 EBRO FOODS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EBRO FOODS has no effect on the direction of PT Indofood i.e., PT Indofood and EBRO FOODS go up and down completely randomly.

Pair Corralation between PT Indofood and EBRO FOODS

Assuming the 90 days horizon PT Indofood Sukses is expected to generate 4.28 times more return on investment than EBRO FOODS. However, PT Indofood is 4.28 times more volatile than EBRO FOODS. It trades about 0.08 of its potential returns per unit of risk. EBRO FOODS is currently generating about 0.05 per unit of risk. If you would invest  40.00  in PT Indofood Sukses on September 20, 2024 and sell it today you would earn a total of  6.00  from holding PT Indofood Sukses or generate 15.0% return on investment over 90 days.

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

PT Indofood Sukses  vs.  EBRO FOODS

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 unsteady basic indicators, PT Indofood reported solid returns over the last few months and may actually be approaching a breakup point.

EBRO FOODS

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in EBRO FOODS are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, EBRO FOODS is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with PT Indofood and EBRO FOODS

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

The idea behind PT Indofood Sukses and EBRO FOODS 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.