Correlation Between Diamond Food and FAP Agri

Can any of the company-specific risk be diversified away by investing in both Diamond Food and FAP 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 Diamond Food and FAP Agri into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Diamond Food Indonesia and FAP Agri Tbk, you can compare the effects of market volatilities on Diamond Food and FAP 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 Diamond Food with a short position of FAP Agri. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diamond Food and FAP Agri.

Diversification Opportunities for Diamond Food and FAP Agri

-0.36

Correlation Coefficient

Diamond Food  FAP Agri

Very good diversification

The 3 months correlation between Diamond and FAP is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Food Indonesia and FAP Agri Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAP Agri Tbk and Diamond Food 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 Diamond Food Indonesia are associated (or correlated) with FAP Agri. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FAP Agri Tbk has no effect on the direction of Diamond Food i.e., Diamond Food and FAP Agri go up and down completely randomly.

Pair Corralation between Diamond Food and FAP Agri

Assuming the 90 days trading horizon Diamond Food Indonesia is expected to under-perform the FAP Agri. In addition to that, Diamond Food is 3.85 times more volatile than FAP Agri Tbk. It trades about -0.01 of its total potential returns per unit of risk. FAP Agri Tbk is currently generating about 0.14 per unit of volatility. If you would invest  509,586  in FAP Agri Tbk on December 29, 2024 and sell it today you would earn a total of  17,914  from holding FAP Agri Tbk or generate 3.52% return on investment over 90 days.

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

Diamond Food Indonesia  vs.  FAP Agri Tbk

Diamond Food Indonesia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diamond Food Indonesia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Diamond Food is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

FAP Agri Tbk

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FAP Agri Tbk are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, FAP Agri is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Diamond Food and FAP Agri

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

The idea behind Diamond Food Indonesia and FAP Agri Tbk 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.