Correlation Between Provident Agro and Wilmar Cahaya

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

By analyzing existing cross correlation between Provident Agro Tbk and Wilmar Cahaya Indonesia, you can compare the effects of market volatilities on Provident Agro and Wilmar Cahaya 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 Provident Agro with a short position of Wilmar Cahaya. Check out your portfolio center. Please also check ongoing floating volatility patterns of Provident Agro and Wilmar Cahaya.

Diversification Opportunities for Provident Agro and Wilmar Cahaya

0.3

Correlation Coefficient

Provident Agro  Wilmar Cahaya

Weak diversification

The 3 months correlation between Provident and Wilmar is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Provident Agro Tbk and Wilmar Cahaya Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wilmar Cahaya Indonesia and Provident Agro 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 Provident Agro Tbk are associated (or correlated) with Wilmar Cahaya. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wilmar Cahaya Indonesia has no effect on the direction of Provident Agro i.e., Provident Agro and Wilmar Cahaya go up and down completely randomly.

Pair Corralation between Provident Agro and Wilmar Cahaya

Assuming the 90 days trading horizon Provident Agro Tbk is expected to under-perform the Wilmar Cahaya. In addition to that, Provident Agro is 1.34 times more volatile than Wilmar Cahaya Indonesia. It trades about -0.05 of its total potential returns per unit of risk. Wilmar Cahaya Indonesia is currently generating about -0.01 per unit of volatility. If you would invest  207,000  in Wilmar Cahaya Indonesia on September 18, 2024 and sell it today you would lose (2,000) from holding Wilmar Cahaya Indonesia or give up 0.97% of portfolio value over 90 days.

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

Provident Agro Tbk  vs.  Wilmar Cahaya Indonesia

Provident Agro Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Provident Agro Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Provident Agro is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Wilmar Cahaya Indonesia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wilmar Cahaya Indonesia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Wilmar Cahaya 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 Provident Agro and Wilmar Cahaya

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

The idea behind Provident Agro Tbk and Wilmar Cahaya Indonesia 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.