Correlation Between INDOFOOD AGRI and VITEC SOFTWARE

Can any of the company-specific risk be diversified away by investing in both INDOFOOD AGRI and VITEC SOFTWARE 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 VITEC SOFTWARE 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 VITEC SOFTWARE GROUP, you can compare the effects of market volatilities on INDOFOOD AGRI and VITEC SOFTWARE 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 VITEC SOFTWARE. Check out your portfolio center. Please also check ongoing floating volatility patterns of INDOFOOD AGRI and VITEC SOFTWARE.

Diversification Opportunities for INDOFOOD AGRI and VITEC SOFTWARE

-0.06

Correlation Coefficient

INDOFOOD AGRI  VITEC SOFTWARE

Good diversification

The 3 months correlation between INDOFOOD and VITEC is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding INDOFOOD AGRI RES and VITEC SOFTWARE GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VITEC SOFTWARE 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 VITEC SOFTWARE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VITEC SOFTWARE GROUP has no effect on the direction of INDOFOOD AGRI i.e., INDOFOOD AGRI and VITEC SOFTWARE go up and down completely randomly.

Pair Corralation between INDOFOOD AGRI and VITEC SOFTWARE

Assuming the 90 days trading horizon INDOFOOD AGRI RES is expected to under-perform the VITEC SOFTWARE. But the stock apears to be less risky and, when comparing its historical volatility, INDOFOOD AGRI RES is 1.36 times less risky than VITEC SOFTWARE. The stock trades about -0.08 of its potential returns per unit of risk. The VITEC SOFTWARE GROUP is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  4,112  in VITEC SOFTWARE GROUP on October 11, 2024 and sell it today you would earn a total of  758.00  from holding VITEC SOFTWARE GROUP or generate 18.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.44%
Values	Daily Returns

INDOFOOD AGRI RES  vs.  VITEC SOFTWARE GROUP

INDOFOOD AGRI RES

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in INDOFOOD AGRI RES are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

VITEC SOFTWARE GROUP

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VITEC SOFTWARE GROUP are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, VITEC SOFTWARE reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with INDOFOOD AGRI and VITEC SOFTWARE

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

The idea behind INDOFOOD AGRI RES and VITEC SOFTWARE 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.