Correlation Between Fast Food and Island Concepts
Can any of the company-specific risk be diversified away by investing in both Fast Food and Island Concepts 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 Fast Food and Island Concepts into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fast Food Indonesia and Island Concepts Indonesia, you can compare the effects of market volatilities on Fast Food and Island Concepts 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 Fast Food with a short position of Island Concepts. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fast Food and Island Concepts.
Diversification Opportunities for Fast Food and Island Concepts
0.27 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Fast and Island is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Fast Food Indonesia and Island Concepts Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Island Concepts Indonesia and Fast Food 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 Fast Food Indonesia are associated (or correlated) with Island Concepts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Island Concepts Indonesia has no effect on the direction of Fast Food i.e., Fast Food and Island Concepts go up and down completely randomly.
Pair Corralation between Fast Food and Island Concepts
Assuming the 90 days trading horizon Fast Food Indonesia is expected to under-perform the Island Concepts. But the stock apears to be less risky and, when comparing its historical volatility, Fast Food Indonesia is 1.56 times less risky than Island Concepts. The stock trades about -0.07 of its potential returns per unit of risk. The Island Concepts Indonesia is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 6,400 in Island Concepts Indonesia on September 3, 2024 and sell it today you would lose (3,000) from holding Island Concepts Indonesia or give up 46.87% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fast Food Indonesia vs. Island Concepts Indonesia
Performance |
| Timeline |
| Fast Food Indonesia |
| Island Concepts Indonesia |
Fast Food and Island Concepts Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fast Food and Island Concepts
The main advantage of trading using opposite Fast Food and Island Concepts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fast Food position performs unexpectedly, Island Concepts 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 Island Concepts will offset losses from the drop in Island Concepts' long position.| Fast Food vs. Mitra Pinasthika Mustika | Fast Food vs. Jakarta Int Hotels | Fast Food vs. Asuransi Harta Aman | Fast Food vs. Indosterling Technomedia Tbk |
| Island Concepts vs. Indonesian Paradise Property | Island Concepts vs. Inter Delta Tbk | Island Concepts vs. Jakarta Setiabudi Internasional | Island Concepts vs. Fast Food Indonesia |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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