Correlation Between Metro Healthcare and PT Indofood

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

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

Diversification Opportunities for Metro Healthcare and PT Indofood

0.83

Correlation Coefficient

Metro Healthcare  PT Indofood

Very poor diversification

The 3 months correlation between Metro and INDF is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Metro Healthcare Indonesia 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 Metro Healthcare 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 Healthcare Indonesia 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 Metro Healthcare i.e., Metro Healthcare and PT Indofood go up and down completely randomly.

Pair Corralation between Metro Healthcare and PT Indofood

Assuming the 90 days trading horizon Metro Healthcare Indonesia is expected to generate 1.95 times more return on investment than PT Indofood. However, Metro Healthcare is 1.95 times more volatile than PT Indofood Sukses. It trades about 0.33 of its potential returns per unit of risk. PT Indofood Sukses is currently generating about 0.11 per unit of risk. If you would invest  9,400  in Metro Healthcare Indonesia on September 3, 2024 and sell it today you would earn a total of  7,700  from holding Metro Healthcare Indonesia or generate 81.91% return on investment over 90 days.

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

Metro Healthcare Indonesia  vs.  PT Indofood Sukses

Metro Healthcare Ind

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Metro Healthcare Indonesia are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Metro Healthcare disclosed solid returns over the last few months and may actually be approaching a breakup point.

PT Indofood Sukses

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PT Indofood Sukses are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, PT Indofood may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Metro Healthcare and PT Indofood

The main advantage of trading using opposite Metro Healthcare and PT Indofood positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Metro Healthcare 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 Metro Healthcare Indonesia 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.