Correlation Between Gudang Garam and PT Indofood

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

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

Diversification Opportunities for Gudang Garam and PT Indofood

-0.83

Correlation Coefficient

Gudang Garam  PT Indofood

Pay attention - limited upside

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

Pair Corralation between Gudang Garam and PT Indofood

Assuming the 90 days trading horizon Gudang Garam is expected to generate 4.78 times less return on investment than PT Indofood. In addition to that, Gudang Garam is 1.31 times more volatile than PT Indofood Sukses. It trades about 0.03 of its total potential returns per unit of risk. PT Indofood Sukses is currently generating about 0.17 per unit of volatility. If you would invest  785,000  in PT Indofood Sukses on September 13, 2024 and sell it today you would earn a total of  40,000  from holding PT Indofood Sukses or generate 5.1% return on investment over 90 days.

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

Gudang Garam Tbk  vs.  PT Indofood Sukses

Gudang Garam Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gudang Garam Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

PT Indofood Sukses

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PT Indofood Sukses are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, PT Indofood disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gudang Garam and PT Indofood

The main advantage of trading using opposite Gudang Garam and PT Indofood positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gudang Garam 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 Gudang Garam Tbk 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.