Correlation Between INDOFOOD AGRI and ITALIAN WINE

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

Diversification Opportunities for INDOFOOD AGRI and ITALIAN WINE

0.35

Correlation Coefficient

INDOFOOD AGRI  ITALIAN WINE

Weak diversification

The 3 months correlation between INDOFOOD and ITALIAN is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding INDOFOOD AGRI RES and ITALIAN WINE BRANDS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITALIAN WINE BRANDS 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 ITALIAN WINE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITALIAN WINE BRANDS has no effect on the direction of INDOFOOD AGRI i.e., INDOFOOD AGRI and ITALIAN WINE go up and down completely randomly.

Pair Corralation between INDOFOOD AGRI and ITALIAN WINE

Assuming the 90 days trading horizon INDOFOOD AGRI RES is expected to generate 0.8 times more return on investment than ITALIAN WINE. However, INDOFOOD AGRI RES is 1.25 times less risky than ITALIAN WINE. It trades about -0.02 of its potential returns per unit of risk. ITALIAN WINE BRANDS is currently generating about -0.06 per unit of risk. If you would invest  22.00  in INDOFOOD AGRI RES on December 30, 2024 and sell it today you would lose (1.00) from holding INDOFOOD AGRI RES or give up 4.55% of portfolio value over 90 days.

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

INDOFOOD AGRI RES  vs.  ITALIAN WINE BRANDS

INDOFOOD AGRI RES

Risk-Adjusted Performance

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.

ITALIAN WINE BRANDS

Risk-Adjusted Performance

Very Weak

Over the last 90 days ITALIAN WINE BRANDS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with INDOFOOD AGRI and ITALIAN WINE

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

The idea behind INDOFOOD AGRI RES and ITALIAN WINE BRANDS 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.