Correlation Between Titan Machinery and PT Indofood

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

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

Diversification Opportunities for Titan Machinery and PT Indofood

0.34

Correlation Coefficient

Titan Machinery  PT Indofood

Weak diversification

The 3 months correlation between Titan and ISM is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Titan Machinery 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 Titan Machinery 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 Titan Machinery 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 Titan Machinery i.e., Titan Machinery and PT Indofood go up and down completely randomly.

Pair Corralation between Titan Machinery and PT Indofood

Assuming the 90 days horizon Titan Machinery is expected to generate 0.92 times more return on investment than PT Indofood. However, Titan Machinery is 1.09 times less risky than PT Indofood. It trades about 0.1 of its potential returns per unit of risk. PT Indofood Sukses is currently generating about -0.02 per unit of risk. If you would invest  1,340  in Titan Machinery on December 27, 2024 and sell it today you would earn a total of  300.00  from holding Titan Machinery or generate 22.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Titan Machinery  vs.  PT Indofood Sukses

Titan Machinery

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Titan Machinery are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Titan Machinery reported solid returns over the last few months and may actually be approaching a breakup point.

PT Indofood Sukses

Risk-Adjusted Performance

Very Weak

Over the last 90 days PT Indofood Sukses has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, PT Indofood is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Titan Machinery and PT Indofood

The main advantage of trading using opposite Titan Machinery and PT Indofood positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Titan Machinery 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 Titan Machinery 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.