Correlation Between Indofood Sukses and Indofood CBP

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

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

Diversification Opportunities for Indofood Sukses and Indofood CBP

0.51

Correlation Coefficient

Indofood Sukses  Indofood CBP

Very weak diversification

The 3 months correlation between Indofood and Indofood is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Indofood Sukses Makmur and Indofood CBP Sukses in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indofood CBP Sukses and Indofood Sukses 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 Indofood Sukses Makmur are associated (or correlated) with Indofood CBP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indofood CBP Sukses has no effect on the direction of Indofood Sukses i.e., Indofood Sukses and Indofood CBP go up and down completely randomly.

Pair Corralation between Indofood Sukses and Indofood CBP

Assuming the 90 days horizon Indofood Sukses is expected to generate 2.02 times less return on investment than Indofood CBP. In addition to that, Indofood Sukses is 1.25 times more volatile than Indofood CBP Sukses. It trades about 0.06 of its total potential returns per unit of risk. Indofood CBP Sukses is currently generating about 0.15 per unit of volatility. If you would invest  1,233  in Indofood CBP Sukses on September 5, 2024 and sell it today you would earn a total of  305.00  from holding Indofood CBP Sukses or generate 24.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Indofood Sukses Makmur  vs.  Indofood CBP Sukses

Indofood Sukses Makmur

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Indofood Sukses Makmur are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Indofood Sukses may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Indofood CBP Sukses

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Indofood CBP Sukses are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Indofood CBP showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Indofood Sukses and Indofood CBP

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

The idea behind Indofood Sukses Makmur and Indofood CBP 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.