Correlation Between TreeHouse Foods and INDOFOOD AGRI

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

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

Diversification Opportunities for TreeHouse Foods and INDOFOOD AGRI

-0.3

Correlation Coefficient

TreeHouse Foods  INDOFOOD AGRI

Very good diversification

The 3 months correlation between TreeHouse and INDOFOOD is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding TreeHouse Foods 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 TreeHouse Foods 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 TreeHouse Foods 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 TreeHouse Foods i.e., TreeHouse Foods and INDOFOOD AGRI go up and down completely randomly.

Pair Corralation between TreeHouse Foods and INDOFOOD AGRI

Assuming the 90 days horizon TreeHouse Foods is expected to generate 2.25 times more return on investment than INDOFOOD AGRI. However, TreeHouse Foods is 2.25 times more volatile than INDOFOOD AGRI RES. It trades about 0.0 of its potential returns per unit of risk. INDOFOOD AGRI RES is currently generating about 0.01 per unit of risk. If you would invest  3,440  in TreeHouse Foods on October 6, 2024 and sell it today you would lose (60.00) from holding TreeHouse Foods or give up 1.74% of portfolio value over 90 days.

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

TreeHouse Foods  vs.  INDOFOOD AGRI RES

TreeHouse Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TreeHouse Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, TreeHouse Foods is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

INDOFOOD AGRI RES

Risk-Adjusted Performance

0 of 100

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 rather sound technical and fundamental indicators, INDOFOOD AGRI is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with TreeHouse Foods and INDOFOOD AGRI

The main advantage of trading using opposite TreeHouse Foods and INDOFOOD AGRI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TreeHouse Foods 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 TreeHouse Foods 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.