Correlation Between Provident Agro and PT Indofood

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

Diversification Opportunities for Provident Agro and PT Indofood

-0.28

Correlation Coefficient

Provident Agro  PT Indofood

Very good diversification

The 3 months correlation between Provident and INDF is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Provident Agro Tbk 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 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 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 Provident Agro i.e., Provident Agro and PT Indofood go up and down completely randomly.

Pair Corralation between Provident Agro and PT Indofood

Assuming the 90 days trading horizon Provident Agro is expected to generate 8.85 times less return on investment than PT Indofood. But when comparing it to its historical volatility, Provident Agro Tbk is 1.07 times less risky than PT Indofood. It trades about 0.02 of its potential returns per unit of risk. PT Indofood Sukses is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  715,000  in PT Indofood Sukses on September 12, 2024 and sell it today you would earn a total of  105,000  from holding PT Indofood Sukses or generate 14.69% return on investment over 90 days.

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

Provident Agro Tbk  vs.  PT Indofood Sukses

Provident Agro Tbk

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Provident Agro Tbk are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

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.

Pair Trading with Provident Agro and PT Indofood

The main advantage of trading using opposite Provident Agro and PT Indofood positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Provident Agro 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 Provident Agro Tbk 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.