Correlation Between Wilmar International and Golden Agri-Resources

Can any of the company-specific risk be diversified away by investing in both Wilmar International and Golden Agri-Resources 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 Wilmar International and Golden Agri-Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Wilmar International and Golden Agri Resources, you can compare the effects of market volatilities on Wilmar International and Golden Agri-Resources 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 Wilmar International with a short position of Golden Agri-Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wilmar International and Golden Agri-Resources.

Diversification Opportunities for Wilmar International and Golden Agri-Resources

0.27

Correlation Coefficient

Wilmar International  Golden Agri-Resources

Modest diversification

The 3 months correlation between Wilmar and Golden is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Wilmar International and Golden Agri Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Golden Agri Resources and Wilmar International 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 Wilmar International are associated (or correlated) with Golden Agri-Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Golden Agri Resources has no effect on the direction of Wilmar International i.e., Wilmar International and Golden Agri-Resources go up and down completely randomly.

Pair Corralation between Wilmar International and Golden Agri-Resources

Assuming the 90 days horizon Wilmar International is expected to under-perform the Golden Agri-Resources. But the pink sheet apears to be less risky and, when comparing its historical volatility, Wilmar International is 1.72 times less risky than Golden Agri-Resources. The pink sheet trades about -0.01 of its potential returns per unit of risk. The Golden Agri Resources is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  17.00  in Golden Agri Resources on September 1, 2024 and sell it today you would earn a total of  3.00  from holding Golden Agri Resources or generate 17.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Wilmar International  vs.  Golden Agri Resources

Wilmar International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Golden Agri Resources

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Golden Agri Resources are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Golden Agri-Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wilmar International and Golden Agri-Resources

The main advantage of trading using opposite Wilmar International and Golden Agri-Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wilmar International position performs unexpectedly, Golden Agri-Resources 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 Golden Agri-Resources will offset losses from the drop in Golden Agri-Resources' long position.

The idea behind Wilmar International and Golden Agri Resources 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.