Correlation Between GM and Indofood CBP
Can any of the company-specific risk be diversified away by investing in both GM and Indofood CBP 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 GM and Indofood CBP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Indofood CBP Sukses, you can compare the effects of market volatilities on GM and Indofood CBP 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 GM with a short position of Indofood CBP. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Indofood CBP.
Diversification Opportunities for GM and Indofood CBP
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GM and Indofood is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Indofood CBP Sukses in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indofood CBP Sukses and GM 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 General Motors are associated (or correlated) with Indofood CBP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indofood CBP Sukses has no effect on the direction of GM i.e., GM and Indofood CBP go up and down completely randomly.
Pair Corralation between GM and Indofood CBP
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.18 times more return on investment than Indofood CBP. However, GM is 1.18 times more volatile than Indofood CBP Sukses. It trades about -0.17 of its potential returns per unit of risk. Indofood CBP Sukses is currently generating about -0.21 per unit of risk. If you would invest 5,753 in General Motors on September 12, 2024 and sell it today you would lose (549.00) from holding General Motors or give up 9.54% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
General Motors vs. Indofood CBP Sukses
Performance |
| Timeline |
| General Motors |
| Indofood CBP Sukses |
GM and Indofood CBP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Indofood CBP
The main advantage of trading using opposite GM and Indofood CBP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Indofood CBP 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 CBP will offset losses from the drop in Indofood CBP's long position.The idea behind General Motors and Indofood CBP Sukses 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 CBP vs. Indofood Sukses Makmur | Indofood CBP vs. First Pacific | Indofood CBP vs. Grupo Herdez SAB | Indofood CBP vs. Fraser and Neave |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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