Correlation Between PT Indofood and Indonesian Tobacco
Can any of the company-specific risk be diversified away by investing in both PT Indofood and Indonesian Tobacco 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 PT Indofood and Indonesian Tobacco into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PT Indofood Sukses and Indonesian Tobacco Tbk, you can compare the effects of market volatilities on PT Indofood and Indonesian Tobacco 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 PT Indofood with a short position of Indonesian Tobacco. Check out your portfolio center. Please also check ongoing floating volatility patterns of PT Indofood and Indonesian Tobacco.
Diversification Opportunities for PT Indofood and Indonesian Tobacco
0.24 | Correlation Coefficient |
Modest diversification
The 3 months correlation between INDF and Indonesian is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding PT Indofood Sukses and Indonesian Tobacco Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indonesian Tobacco Tbk and PT Indofood 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 PT Indofood Sukses are associated (or correlated) with Indonesian Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indonesian Tobacco Tbk has no effect on the direction of PT Indofood i.e., PT Indofood and Indonesian Tobacco go up and down completely randomly.
Pair Corralation between PT Indofood and Indonesian Tobacco
Assuming the 90 days trading horizon PT Indofood Sukses is expected to generate 1.14 times more return on investment than Indonesian Tobacco. However, PT Indofood is 1.14 times more volatile than Indonesian Tobacco Tbk. It trades about 0.03 of its potential returns per unit of risk. Indonesian Tobacco Tbk is currently generating about -0.03 per unit of risk. If you would invest 757,500 in PT Indofood Sukses on August 30, 2024 and sell it today you would earn a total of 7,500 from holding PT Indofood Sukses or generate 0.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
PT Indofood Sukses vs. Indonesian Tobacco Tbk
Performance |
| Timeline |
| PT Indofood Sukses |
| Indonesian Tobacco Tbk |
PT Indofood and Indonesian Tobacco Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PT Indofood and Indonesian Tobacco
The main advantage of trading using opposite PT Indofood and Indonesian Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PT Indofood position performs unexpectedly, Indonesian Tobacco 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 Indonesian Tobacco will offset losses from the drop in Indonesian Tobacco's long position.| PT Indofood vs. Astra International Tbk | PT Indofood vs. Unilever Indonesia Tbk | PT Indofood vs. Telkom Indonesia Tbk | PT Indofood vs. Bank Mandiri Persero |
| Indonesian Tobacco vs. Wismilak Inti Makmur | Indonesian Tobacco vs. J Resources Asia | Indonesian Tobacco vs. Transcoal Pacific Tbk | Indonesian Tobacco vs. Garudafood Putra Putri |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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