Correlation Between DevEx Resources and PT Indofood

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

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

Diversification Opportunities for DevEx Resources and PT Indofood

0.39

Correlation Coefficient

DevEx Resources  PT Indofood

Weak diversification

The 3 months correlation between DevEx and ISM is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding DevEx Resources Limited 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 DevEx Resources 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 DevEx Resources Limited 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 DevEx Resources i.e., DevEx Resources and PT Indofood go up and down completely randomly.

Pair Corralation between DevEx Resources and PT Indofood

Assuming the 90 days horizon DevEx Resources Limited is expected to generate 4.75 times more return on investment than PT Indofood. However, DevEx Resources is 4.75 times more volatile than PT Indofood Sukses. It trades about 0.04 of its potential returns per unit of risk. PT Indofood Sukses is currently generating about -0.08 per unit of risk. If you would invest  5.95  in DevEx Resources Limited on December 19, 2024 and sell it today you would lose (0.35) from holding DevEx Resources Limited or give up 5.88% of portfolio value over 90 days.

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

DevEx Resources Limited  vs.  PT Indofood Sukses

DevEx Resources

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DevEx Resources Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, DevEx Resources 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. In spite of latest fragile performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with DevEx Resources and PT Indofood

The main advantage of trading using opposite DevEx Resources and PT Indofood positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DevEx Resources 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 DevEx Resources Limited 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.