Correlation Between PT Indofood and BASF SE

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

Diversification Opportunities for PT Indofood and BASF SE

-0.44

Correlation Coefficient

PT Indofood  BASF SE

Very good diversification

The 3 months correlation between ISM and BASF is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding PT Indofood Sukses and BASF SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BASF SE 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 BASF SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BASF SE has no effect on the direction of PT Indofood i.e., PT Indofood and BASF SE go up and down completely randomly.

Pair Corralation between PT Indofood and BASF SE

Assuming the 90 days horizon PT Indofood Sukses is expected to generate 1.73 times more return on investment than BASF SE. However, PT Indofood is 1.73 times more volatile than BASF SE. It trades about 0.08 of its potential returns per unit of risk. BASF SE is currently generating about -0.02 per unit of risk. If you would invest  38.00  in PT Indofood Sukses on September 4, 2024 and sell it today you would earn a total of  5.00  from holding PT Indofood Sukses or generate 13.16% return on investment over 90 days.

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

PT Indofood Sukses  vs.  BASF SE

PT Indofood Sukses

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PT Indofood Sukses are ranked lower than 5 (%) 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.

BASF SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BASF SE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, BASF SE is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with PT Indofood and BASF SE

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

The idea behind PT Indofood Sukses and BASF SE 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.