Correlation Between Indofood Sukses and Petra Diamonds

Can any of the company-specific risk be diversified away by investing in both Indofood Sukses and Petra Diamonds 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 Indofood Sukses and Petra Diamonds into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Indofood Sukses Makmur and Petra Diamonds Limited, you can compare the effects of market volatilities on Indofood Sukses and Petra Diamonds 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 Indofood Sukses with a short position of Petra Diamonds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indofood Sukses and Petra Diamonds.

Diversification Opportunities for Indofood Sukses and Petra Diamonds

-0.36

Correlation Coefficient

Indofood Sukses  Petra Diamonds

Very good diversification

The 3 months correlation between Indofood and Petra is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Indofood Sukses Makmur and Petra Diamonds Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petra Diamonds and Indofood Sukses 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 Indofood Sukses Makmur are associated (or correlated) with Petra Diamonds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petra Diamonds has no effect on the direction of Indofood Sukses i.e., Indofood Sukses and Petra Diamonds go up and down completely randomly.

Pair Corralation between Indofood Sukses and Petra Diamonds

Assuming the 90 days horizon Indofood Sukses Makmur is expected to generate 1.02 times more return on investment than Petra Diamonds. However, Indofood Sukses is 1.02 times more volatile than Petra Diamonds Limited. It trades about 0.06 of its potential returns per unit of risk. Petra Diamonds Limited is currently generating about -0.17 per unit of risk. If you would invest  2,317  in Indofood Sukses Makmur on September 16, 2024 and sell it today you would earn a total of  252.00  from holding Indofood Sukses Makmur or generate 10.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.48%
Values	Daily Returns

Indofood Sukses Makmur  vs.  Petra Diamonds Limited

Indofood Sukses Makmur

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Indofood Sukses Makmur are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Indofood Sukses showed solid returns over the last few months and may actually be approaching a breakup point.

Petra Diamonds

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petra Diamonds Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's primary indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Indofood Sukses and Petra Diamonds

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

The idea behind Indofood Sukses Makmur and Petra Diamonds 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.