Correlation Between INDOFOOD AGRI and RCM TECHNOLOGIES

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

Diversification Opportunities for INDOFOOD AGRI and RCM TECHNOLOGIES

0.28

Correlation Coefficient

INDOFOOD AGRI  RCM TECHNOLOGIES

Modest diversification

The 3 months correlation between INDOFOOD and RCM is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding INDOFOOD AGRI RES and RCM TECHNOLOGIES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RCM TECHNOLOGIES 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 RCM TECHNOLOGIES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RCM TECHNOLOGIES has no effect on the direction of INDOFOOD AGRI i.e., INDOFOOD AGRI and RCM TECHNOLOGIES go up and down completely randomly.

Pair Corralation between INDOFOOD AGRI and RCM TECHNOLOGIES

Assuming the 90 days trading horizon INDOFOOD AGRI RES is expected to generate 0.71 times more return on investment than RCM TECHNOLOGIES. However, INDOFOOD AGRI RES is 1.4 times less risky than RCM TECHNOLOGIES. It trades about 0.03 of its potential returns per unit of risk. RCM TECHNOLOGIES is currently generating about 0.01 per unit of risk. If you would invest  19.00  in INDOFOOD AGRI RES on October 21, 2024 and sell it today you would earn a total of  3.00  from holding INDOFOOD AGRI RES or generate 15.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	93.1%
Values	Daily Returns

INDOFOOD AGRI RES  vs.  RCM TECHNOLOGIES

INDOFOOD AGRI RES

Risk-Adjusted Performance

0 of 100

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

RCM TECHNOLOGIES

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days RCM TECHNOLOGIES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather fragile basic indicators, RCM TECHNOLOGIES exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with INDOFOOD AGRI and RCM TECHNOLOGIES

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

The idea behind INDOFOOD AGRI RES and RCM TECHNOLOGIES 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.

Check out your portfolio center.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.