Correlation Between INDOFOOD AGRI and COMPASS MINERALS

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

Diversification Opportunities for INDOFOOD AGRI and COMPASS MINERALS

0.31

Correlation Coefficient

INDOFOOD AGRI  COMPASS MINERALS

Weak diversification

The 3 months correlation between INDOFOOD and COMPASS is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding INDOFOOD AGRI RES and COMPASS MINERALS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COMPASS MINERALS 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 COMPASS MINERALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COMPASS MINERALS has no effect on the direction of INDOFOOD AGRI i.e., INDOFOOD AGRI and COMPASS MINERALS go up and down completely randomly.

Pair Corralation between INDOFOOD AGRI and COMPASS MINERALS

Assuming the 90 days trading horizon INDOFOOD AGRI RES is expected to generate 0.39 times more return on investment than COMPASS MINERALS. However, INDOFOOD AGRI RES is 2.58 times less risky than COMPASS MINERALS. It trades about 0.05 of its potential returns per unit of risk. COMPASS MINERALS is currently generating about -0.01 per unit of risk. If you would invest  21.00  in INDOFOOD AGRI RES on October 10, 2024 and sell it today you would earn a total of  1.00  from holding INDOFOOD AGRI RES or generate 4.76% return on investment over 90 days.

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

INDOFOOD AGRI RES  vs.  COMPASS MINERALS

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

COMPASS MINERALS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days COMPASS MINERALS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, COMPASS MINERALS is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with INDOFOOD AGRI and COMPASS MINERALS

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

The idea behind INDOFOOD AGRI RES and COMPASS MINERALS 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.