Correlation Between INDOFOOD AGRI and Major Drilling

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

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

Diversification Opportunities for INDOFOOD AGRI and Major Drilling

0.43

Correlation Coefficient

INDOFOOD AGRI  Major Drilling

Very weak diversification

The 3 months correlation between INDOFOOD and Major is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding INDOFOOD AGRI RES and Major Drilling Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Major Drilling Group and INDOFOOD AGRI 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 AGRI RES are associated (or correlated) with Major Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Major Drilling Group has no effect on the direction of INDOFOOD AGRI i.e., INDOFOOD AGRI and Major Drilling go up and down completely randomly.

Pair Corralation between INDOFOOD AGRI and Major Drilling

Assuming the 90 days trading horizon INDOFOOD AGRI is expected to generate 4.02 times less return on investment than Major Drilling. But when comparing it to its historical volatility, INDOFOOD AGRI RES is 1.19 times less risky than Major Drilling. It trades about 0.01 of its potential returns per unit of risk. Major Drilling Group is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  530.00  in Major Drilling Group on October 4, 2024 and sell it today you would earn a total of  15.00  from holding Major Drilling Group or generate 2.83% return on investment over 90 days.

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

INDOFOOD AGRI RES  vs.  Major Drilling Group

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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Major Drilling Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Major Drilling Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Major Drilling is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with INDOFOOD AGRI and Major Drilling

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

The idea behind INDOFOOD AGRI RES and Major Drilling Group 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.