Correlation Between Sims Metal and PT Indofood

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

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

Diversification Opportunities for Sims Metal and PT Indofood

-0.01

Correlation Coefficient

Sims Metal  PT Indofood

Good diversification

The 3 months correlation between Sims and ISM is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management 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 Sims Metal 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 Sims Metal Management 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 Sims Metal i.e., Sims Metal and PT Indofood go up and down completely randomly.

Pair Corralation between Sims Metal and PT Indofood

Assuming the 90 days horizon Sims Metal Management is expected to under-perform the PT Indofood. But the stock apears to be less risky and, when comparing its historical volatility, Sims Metal Management is 1.0 times less risky than PT Indofood. The stock trades about -0.02 of its potential returns per unit of risk. The PT Indofood Sukses is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  44.00  in PT Indofood Sukses on October 6, 2024 and sell it today you would lose (1.00) from holding PT Indofood Sukses or give up 2.27% of portfolio value over 90 days.

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

Sims Metal Management  vs.  PT Indofood Sukses

Sims Metal Management

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sims Metal Management has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Sims Metal is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

PT Indofood Sukses

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PT Indofood Sukses are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PT Indofood reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sims Metal and PT Indofood

The main advantage of trading using opposite Sims Metal and PT Indofood positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sims Metal 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 Sims Metal Management 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.