Correlation Between PT Indofood and Dairy Farm

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

Diversification Opportunities for PT Indofood and Dairy Farm

0.33

Correlation Coefficient

PT Indofood  Dairy Farm

Weak diversification

The 3 months correlation between ISM and Dairy is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding PT Indofood Sukses and Dairy Farm International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dairy Farm International 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 Dairy Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dairy Farm International has no effect on the direction of PT Indofood i.e., PT Indofood and Dairy Farm go up and down completely randomly.

Pair Corralation between PT Indofood and Dairy Farm

Assuming the 90 days horizon PT Indofood Sukses is expected to under-perform the Dairy Farm. In addition to that, PT Indofood is 1.53 times more volatile than Dairy Farm International. It trades about -0.03 of its total potential returns per unit of risk. Dairy Farm International is currently generating about 0.05 per unit of volatility. If you would invest  203.00  in Dairy Farm International on December 28, 2024 and sell it today you would earn a total of  13.00  from holding Dairy Farm International or generate 6.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

PT Indofood Sukses  vs.  Dairy Farm International

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.

Dairy Farm International

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dairy Farm International are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Dairy Farm may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with PT Indofood and Dairy Farm

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

The idea behind PT Indofood Sukses and Dairy Farm International 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.