Correlation Between PT Indofood and Cal-Maine Foods

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

Diversification Opportunities for PT Indofood and Cal-Maine Foods

0.77

Correlation Coefficient

PT Indofood  Cal-Maine Foods

Poor diversification

The 3 months correlation between ISM and Cal-Maine is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding PT Indofood Sukses and Cal Maine Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cal Maine Foods 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 Cal-Maine Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cal Maine Foods has no effect on the direction of PT Indofood i.e., PT Indofood and Cal-Maine Foods go up and down completely randomly.

Pair Corralation between PT Indofood and Cal-Maine Foods

Assuming the 90 days horizon PT Indofood is expected to generate 3.13 times less return on investment than Cal-Maine Foods. In addition to that, PT Indofood is 1.37 times more volatile than Cal Maine Foods. It trades about 0.06 of its total potential returns per unit of risk. Cal Maine Foods is currently generating about 0.26 per unit of volatility. If you would invest  6,360  in Cal Maine Foods on September 3, 2024 and sell it today you would earn a total of  2,980  from holding Cal Maine Foods or generate 46.86% return on investment over 90 days.

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

PT Indofood Sukses  vs.  Cal Maine Foods

PT Indofood Sukses

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PT Indofood Sukses are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PT Indofood may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Cal Maine Foods

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cal Maine Foods are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Cal-Maine Foods reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PT Indofood and Cal-Maine Foods

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

The idea behind PT Indofood Sukses and Cal Maine Foods 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.