Correlation Between INDOFOOD AGRI and MGIC INVESTMENT

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

By analyzing existing cross correlation between INDOFOOD AGRI RES and MGIC INVESTMENT, you can compare the effects of market volatilities on INDOFOOD AGRI and MGIC INVESTMENT 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 AGRI with a short position of MGIC INVESTMENT. Check out your portfolio center. Please also check ongoing floating volatility patterns of INDOFOOD AGRI and MGIC INVESTMENT.

Diversification Opportunities for INDOFOOD AGRI and MGIC INVESTMENT

0.55

Correlation Coefficient

INDOFOOD AGRI  MGIC INVESTMENT

Very weak diversification

The 3 months correlation between INDOFOOD and MGIC is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding INDOFOOD AGRI RES and MGIC INVESTMENT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MGIC INVESTMENT and INDOFOOD AGRI 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 AGRI RES are associated (or correlated) with MGIC INVESTMENT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MGIC INVESTMENT has no effect on the direction of INDOFOOD AGRI i.e., INDOFOOD AGRI and MGIC INVESTMENT go up and down completely randomly.

Pair Corralation between INDOFOOD AGRI and MGIC INVESTMENT

Assuming the 90 days trading horizon INDOFOOD AGRI is expected to generate 1.71 times less return on investment than MGIC INVESTMENT. In addition to that, INDOFOOD AGRI is 1.59 times more volatile than MGIC INVESTMENT. It trades about 0.04 of its total potential returns per unit of risk. MGIC INVESTMENT is currently generating about 0.12 per unit of volatility. If you would invest  2,267  in MGIC INVESTMENT on August 31, 2024 and sell it today you would earn a total of  233.00  from holding MGIC INVESTMENT or generate 10.28% return on investment over 90 days.

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

INDOFOOD AGRI RES  vs.  MGIC INVESTMENT

INDOFOOD AGRI RES

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in INDOFOOD AGRI RES are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, INDOFOOD AGRI is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

MGIC INVESTMENT

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MGIC INVESTMENT are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, MGIC INVESTMENT may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with INDOFOOD AGRI and MGIC INVESTMENT

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

The idea behind INDOFOOD AGRI RES and MGIC INVESTMENT 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.