Correlation Between PT Indofood and City Retail

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

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

Diversification Opportunities for PT Indofood and City Retail

-0.88

Correlation Coefficient

PT Indofood  City Retail

Pay attention - limited upside

The 3 months correlation between INDF and City is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding PT Indofood Sukses and City Retail Developments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City Retail Developments and PT Indofood 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 PT Indofood Sukses are associated (or correlated) with City Retail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City Retail Developments has no effect on the direction of PT Indofood i.e., PT Indofood and City Retail go up and down completely randomly.

Pair Corralation between PT Indofood and City Retail

Assuming the 90 days trading horizon PT Indofood Sukses is expected to generate 2.69 times more return on investment than City Retail. However, PT Indofood is 2.69 times more volatile than City Retail Developments. It trades about 0.16 of its potential returns per unit of risk. City Retail Developments is currently generating about -0.06 per unit of risk. If you would invest  586,123  in PT Indofood Sukses on September 3, 2024 and sell it today you would earn a total of  166,377  from holding PT Indofood Sukses or generate 28.39% return on investment over 90 days.

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

PT Indofood Sukses  vs.  City Retail Developments

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.

City Retail Developments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days City Retail Developments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, City Retail 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 PT Indofood and City Retail

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

The idea behind PT Indofood Sukses and City Retail Developments 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.