Correlation Between United Tractors and Indofood Sukses

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

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

Diversification Opportunities for United Tractors and Indofood Sukses

0.05

Correlation Coefficient

United Tractors  Indofood Sukses

Significant diversification

The 3 months correlation between United and Indofood is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding United Tractors Tbk and Indofood Sukses Makmur in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indofood Sukses Makmur and United Tractors 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 United Tractors Tbk are associated (or correlated) with Indofood Sukses. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indofood Sukses Makmur has no effect on the direction of United Tractors i.e., United Tractors and Indofood Sukses go up and down completely randomly.

Pair Corralation between United Tractors and Indofood Sukses

Assuming the 90 days horizon United Tractors Tbk is expected to generate 0.92 times more return on investment than Indofood Sukses. However, United Tractors Tbk is 1.09 times less risky than Indofood Sukses. It trades about 0.02 of its potential returns per unit of risk. Indofood Sukses Makmur is currently generating about 0.01 per unit of risk. If you would invest  3,412  in United Tractors Tbk on September 3, 2024 and sell it today you would earn a total of  11.00  from holding United Tractors Tbk or generate 0.32% return on investment over 90 days.

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

United Tractors Tbk  vs.  Indofood Sukses Makmur

United Tractors Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Tractors Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking signals, United Tractors is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Indofood Sukses Makmur

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Indofood Sukses Makmur are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting primary indicators, Indofood Sukses showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Tractors and Indofood Sukses

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

The idea behind United Tractors Tbk and Indofood Sukses Makmur 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.