Correlation Between INDOFOOD AGRI and PREMIER FOODS

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

Diversification Opportunities for INDOFOOD AGRI and PREMIER FOODS

0.55

Correlation Coefficient

INDOFOOD AGRI  PREMIER FOODS

Very weak diversification

The 3 months correlation between INDOFOOD and PREMIER is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding INDOFOOD AGRI RES and PREMIER FOODS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PREMIER FOODS 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 PREMIER FOODS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PREMIER FOODS has no effect on the direction of INDOFOOD AGRI i.e., INDOFOOD AGRI and PREMIER FOODS go up and down completely randomly.

Pair Corralation between INDOFOOD AGRI and PREMIER FOODS

Assuming the 90 days trading horizon INDOFOOD AGRI is expected to generate 1.71 times less return on investment than PREMIER FOODS. In addition to that, INDOFOOD AGRI is 1.5 times more volatile than PREMIER FOODS. It trades about 0.04 of its total potential returns per unit of risk. PREMIER FOODS is currently generating about 0.12 per unit of volatility. If you would invest  212.00  in PREMIER FOODS on September 4, 2024 and sell it today you would earn a total of  22.00  from holding PREMIER FOODS or generate 10.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

INDOFOOD AGRI RES  vs.  PREMIER FOODS

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.

PREMIER FOODS

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PREMIER FOODS are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, PREMIER FOODS may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with INDOFOOD AGRI and PREMIER FOODS

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

The idea behind INDOFOOD AGRI RES and PREMIER FOODS 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.