Correlation Between PT Indofood and Norwegian Air

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

Diversification Opportunities for PT Indofood and Norwegian Air

-0.48

Correlation Coefficient

PT Indofood  Norwegian Air

Very good diversification

The 3 months correlation between ISM and Norwegian is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding PT Indofood Sukses and Norwegian Air Shuttle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norwegian Air Shuttle 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 Norwegian Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norwegian Air Shuttle has no effect on the direction of PT Indofood i.e., PT Indofood and Norwegian Air go up and down completely randomly.

Pair Corralation between PT Indofood and Norwegian Air

Assuming the 90 days horizon PT Indofood Sukses is expected to under-perform the Norwegian Air. In addition to that, PT Indofood is 1.42 times more volatile than Norwegian Air Shuttle. It trades about -0.03 of its total potential returns per unit of risk. Norwegian Air Shuttle is currently generating about 0.1 per unit of volatility. If you would invest  92.00  in Norwegian Air Shuttle on December 29, 2024 and sell it today you would earn a total of  17.00  from holding Norwegian Air Shuttle or generate 18.48% return on investment over 90 days.

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

PT Indofood Sukses  vs.  Norwegian Air Shuttle

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 unsteady 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.

Norwegian Air Shuttle

Risk-Adjusted Performance

OK

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

Pair Trading with PT Indofood and Norwegian Air

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

The idea behind PT Indofood Sukses and Norwegian Air Shuttle 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.