Correlation Between Unilever Indonesia and Provident Agro

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

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

Diversification Opportunities for Unilever Indonesia and Provident Agro

0.44

Correlation Coefficient

Unilever Indonesia  Provident Agro

Very weak diversification

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

Pair Corralation between Unilever Indonesia and Provident Agro

Assuming the 90 days trading horizon Unilever Indonesia Tbk is expected to under-perform the Provident Agro. In addition to that, Unilever Indonesia is 1.52 times more volatile than Provident Agro Tbk. It trades about -0.09 of its total potential returns per unit of risk. Provident Agro Tbk is currently generating about 0.06 per unit of volatility. If you would invest  38,400  in Provident Agro Tbk on September 5, 2024 and sell it today you would earn a total of  2,000  from holding Provident Agro Tbk or generate 5.21% return on investment over 90 days.

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

Unilever Indonesia Tbk  vs.  Provident Agro Tbk

Unilever Indonesia Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Unilever Indonesia Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Provident Agro Tbk

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Provident Agro Tbk are ranked lower than 4 (%) 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.

Pair Trading with Unilever Indonesia and Provident Agro

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

The idea behind Unilever Indonesia Tbk and Provident Agro Tbk 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..