Correlation Between Metro AG and INDOFOOD AGRI

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

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

Diversification Opportunities for Metro AG and INDOFOOD AGRI

-0.33

Correlation Coefficient

Metro AG  INDOFOOD AGRI

Very good diversification

The 3 months correlation between Metro and INDOFOOD is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Metro AG and INDOFOOD AGRI RES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INDOFOOD AGRI RES and Metro AG 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 Metro AG are associated (or correlated) with INDOFOOD AGRI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INDOFOOD AGRI RES has no effect on the direction of Metro AG i.e., Metro AG and INDOFOOD AGRI go up and down completely randomly.

Pair Corralation between Metro AG and INDOFOOD AGRI

Assuming the 90 days trading horizon Metro AG is expected to generate 1.25 times more return on investment than INDOFOOD AGRI. However, Metro AG is 1.25 times more volatile than INDOFOOD AGRI RES. It trades about -0.05 of its potential returns per unit of risk. INDOFOOD AGRI RES is currently generating about -0.08 per unit of risk. If you would invest  437.00  in Metro AG on October 10, 2024 and sell it today you would lose (15.00) from holding Metro AG or give up 3.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.37%
Values	Daily Returns

Metro AG  vs.  INDOFOOD AGRI RES

Metro AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metro AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental drivers remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Metro AG and INDOFOOD AGRI

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

The idea behind Metro AG and INDOFOOD AGRI RES 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.