Correlation Between CN MODERN and INDOFOOD AGRI
Can any of the company-specific risk be diversified away by investing in both CN MODERN and INDOFOOD AGRI 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 CN MODERN and INDOFOOD AGRI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CN MODERN DAIRY and INDOFOOD AGRI RES, you can compare the effects of market volatilities on CN MODERN and INDOFOOD AGRI 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 CN MODERN with a short position of INDOFOOD AGRI. Check out your portfolio center. Please also check ongoing floating volatility patterns of CN MODERN and INDOFOOD AGRI.
Diversification Opportunities for CN MODERN and INDOFOOD AGRI
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between 07M and INDOFOOD is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding CN MODERN DAIRY and INDOFOOD AGRI RES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INDOFOOD AGRI RES and CN MODERN 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 CN MODERN DAIRY are associated (or correlated) with INDOFOOD AGRI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INDOFOOD AGRI RES has no effect on the direction of CN MODERN i.e., CN MODERN and INDOFOOD AGRI go up and down completely randomly.
Pair Corralation between CN MODERN and INDOFOOD AGRI
Assuming the 90 days trading horizon CN MODERN DAIRY is expected to under-perform the INDOFOOD AGRI. But the stock apears to be less risky and, when comparing its historical volatility, CN MODERN DAIRY is 1.54 times less risky than INDOFOOD AGRI. The stock trades about -0.19 of its potential returns per unit of risk. The INDOFOOD AGRI RES is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 21.00 in INDOFOOD AGRI RES on August 28, 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 | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
CN MODERN DAIRY vs. INDOFOOD AGRI RES
Performance |
| Timeline |
| CN MODERN DAIRY |
| INDOFOOD AGRI RES |
CN MODERN and INDOFOOD AGRI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CN MODERN and INDOFOOD AGRI
The main advantage of trading using opposite CN MODERN and INDOFOOD AGRI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CN MODERN position performs unexpectedly, INDOFOOD AGRI 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 INDOFOOD AGRI will offset losses from the drop in INDOFOOD AGRI's long position.The idea behind CN MODERN DAIRY and INDOFOOD AGRI RES 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.| INDOFOOD AGRI vs. Apple Inc | INDOFOOD AGRI vs. Apple Inc | INDOFOOD AGRI vs. Microsoft | INDOFOOD AGRI vs. Microsoft |
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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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