Correlation Between PT Indofood and Summit Materials

Can any of the company-specific risk be diversified away by investing in both PT Indofood and Summit Materials 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 Summit Materials 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 Summit Materials, you can compare the effects of market volatilities on PT Indofood and Summit Materials 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 Summit Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of PT Indofood and Summit Materials.

Diversification Opportunities for PT Indofood and Summit Materials

0.87

Correlation Coefficient

PT Indofood  Summit Materials

Very poor diversification

The 3 months correlation between ISM and Summit is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding PT Indofood Sukses and Summit Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Materials 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 Summit Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Materials has no effect on the direction of PT Indofood i.e., PT Indofood and Summit Materials go up and down completely randomly.

Pair Corralation between PT Indofood and Summit Materials

Assuming the 90 days horizon PT Indofood Sukses is expected to generate 1.84 times more return on investment than Summit Materials. However, PT Indofood is 1.84 times more volatile than Summit Materials. It trades about 0.04 of its potential returns per unit of risk. Summit Materials is currently generating about 0.07 per unit of risk. If you would invest  37.00  in PT Indofood Sukses on September 12, 2024 and sell it today you would earn a total of  10.00  from holding PT Indofood Sukses or generate 27.03% return on investment over 90 days.

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

PT Indofood Sukses  vs.  Summit Materials

PT Indofood Sukses

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PT Indofood Sukses are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, PT Indofood reported solid returns over the last few months and may actually be approaching a breakup point.

Summit Materials

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Summit Materials unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PT Indofood and Summit Materials

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

The idea behind PT Indofood Sukses and Summit Materials 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.