Correlation Between Diageo Plc and INDOFOOD AGRI

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

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

Diversification Opportunities for Diageo Plc and INDOFOOD AGRI

-0.26

Correlation Coefficient

Diageo Plc  INDOFOOD AGRI

Very good diversification

The 3 months correlation between Diageo and INDOFOOD is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Diageo plc 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 Diageo Plc 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 Diageo plc 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 Diageo Plc i.e., Diageo Plc and INDOFOOD AGRI go up and down completely randomly.

Pair Corralation between Diageo Plc and INDOFOOD AGRI

Assuming the 90 days trading horizon Diageo plc is expected to under-perform the INDOFOOD AGRI. But the stock apears to be less risky and, when comparing its historical volatility, Diageo plc is 1.65 times less risky than INDOFOOD AGRI. The stock trades about -0.04 of its potential returns per unit of risk. The INDOFOOD AGRI RES is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  18.00  in INDOFOOD AGRI RES on October 4, 2024 and sell it today you would earn a total of  4.00  from holding INDOFOOD AGRI RES or generate 22.22% return on investment over 90 days.

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

Diageo plc  vs.  INDOFOOD AGRI RES

Diageo plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diageo plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, Diageo Plc is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

INDOFOOD AGRI RES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days INDOFOOD AGRI RES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, INDOFOOD AGRI is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Diageo Plc and INDOFOOD AGRI

The main advantage of trading using opposite Diageo Plc and INDOFOOD AGRI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diageo Plc 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 Diageo plc 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.