Correlation Between PT Indofood and CosmoSteel Holdings

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

Diversification Opportunities for PT Indofood and CosmoSteel Holdings

-0.39

Correlation Coefficient

PT Indofood  CosmoSteel Holdings

Very good diversification

The 3 months correlation between ISM and CosmoSteel is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding PT Indofood Sukses and CosmoSteel Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CosmoSteel Holdings 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 CosmoSteel Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CosmoSteel Holdings has no effect on the direction of PT Indofood i.e., PT Indofood and CosmoSteel Holdings go up and down completely randomly.

Pair Corralation between PT Indofood and CosmoSteel Holdings

Assuming the 90 days horizon PT Indofood Sukses is expected to under-perform the CosmoSteel Holdings. In addition to that, PT Indofood is 1.89 times more volatile than CosmoSteel Holdings Limited. It trades about -0.03 of its total potential returns per unit of risk. CosmoSteel Holdings Limited is currently generating about 0.13 per unit of volatility. If you would invest  6.60  in CosmoSteel Holdings Limited on December 30, 2024 and sell it today you would earn a total of  1.30  from holding CosmoSteel Holdings Limited or generate 19.7% return on investment over 90 days.

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

PT Indofood Sukses  vs.  CosmoSteel Holdings Limited

PT Indofood Sukses

Risk-Adjusted Performance

Very Weak

Over the last 90 days PT Indofood Sukses has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

CosmoSteel Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CosmoSteel Holdings Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CosmoSteel Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PT Indofood and CosmoSteel Holdings

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

The idea behind PT Indofood Sukses and CosmoSteel Holdings Limited 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.