Correlation Between ETFS Coffee and INDOFOOD AGRI

Can any of the company-specific risk be diversified away by investing in both ETFS Coffee and INDOFOOD AGRI 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 ETFS Coffee and INDOFOOD AGRI into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ETFS Coffee ETC and INDOFOOD AGRI RES, you can compare the effects of market volatilities on ETFS Coffee and INDOFOOD AGRI 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 ETFS Coffee with a short position of INDOFOOD AGRI. Check out your portfolio center. Please also check ongoing floating volatility patterns of ETFS Coffee and INDOFOOD AGRI.

Diversification Opportunities for ETFS Coffee and INDOFOOD AGRI

-0.54

Correlation Coefficient

ETFS Coffee  INDOFOOD AGRI

Excellent diversification

The 3 months correlation between ETFS and INDOFOOD is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding ETFS Coffee ETC and INDOFOOD AGRI RES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INDOFOOD AGRI RES and ETFS Coffee 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 ETFS Coffee ETC are associated (or correlated) with INDOFOOD AGRI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INDOFOOD AGRI RES has no effect on the direction of ETFS Coffee i.e., ETFS Coffee and INDOFOOD AGRI go up and down completely randomly.

Pair Corralation between ETFS Coffee and INDOFOOD AGRI

Assuming the 90 days trading horizon ETFS Coffee ETC is expected to generate 1.17 times more return on investment than INDOFOOD AGRI. However, ETFS Coffee is 1.17 times more volatile than INDOFOOD AGRI RES. It trades about 0.1 of its potential returns per unit of risk. INDOFOOD AGRI RES is currently generating about -0.06 per unit of risk. If you would invest  5,279  in ETFS Coffee ETC on December 21, 2024 and sell it today you would earn a total of  821.00  from holding ETFS Coffee ETC or generate 15.55% return on investment over 90 days.

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

ETFS Coffee ETC  vs.  INDOFOOD AGRI RES

ETFS Coffee ETC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ETFS Coffee ETC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, ETFS Coffee reported solid returns over the last few months and may actually be approaching a breakup point.

INDOFOOD AGRI RES

Risk-Adjusted Performance

Very Weak

Over the last 90 days INDOFOOD AGRI RES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with ETFS Coffee and INDOFOOD AGRI

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

The idea behind ETFS Coffee ETC and INDOFOOD AGRI RES 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.