Correlation Between INDOFOOD AGRI and Microsoft

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

Diversification Opportunities for INDOFOOD AGRI and Microsoft

0.33

Correlation Coefficient

INDOFOOD AGRI  Microsoft

Weak diversification

The 3 months correlation between INDOFOOD and Microsoft is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding INDOFOOD AGRI RES and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of INDOFOOD AGRI i.e., INDOFOOD AGRI and Microsoft go up and down completely randomly.

Pair Corralation between INDOFOOD AGRI and Microsoft

Assuming the 90 days trading horizon INDOFOOD AGRI is expected to generate 2.67 times less return on investment than Microsoft. In addition to that, INDOFOOD AGRI is 1.52 times more volatile than Microsoft. It trades about 0.02 of its total potential returns per unit of risk. Microsoft is currently generating about 0.1 per unit of volatility. If you would invest  21,612  in Microsoft on October 11, 2024 and sell it today you would earn a total of  19,483  from holding Microsoft or generate 90.15% 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.  Microsoft

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.

Microsoft

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with INDOFOOD AGRI and Microsoft

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

The idea behind INDOFOOD AGRI RES and Microsoft 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.