Correlation Between Provident Agro and Gozco Plantations
Can any of the company-specific risk be diversified away by investing in both Provident Agro and Gozco Plantations 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 Provident Agro and Gozco Plantations into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Provident Agro Tbk and Gozco Plantations Tbk, you can compare the effects of market volatilities on Provident Agro and Gozco Plantations 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 Provident Agro with a short position of Gozco Plantations. Check out your portfolio center. Please also check ongoing floating volatility patterns of Provident Agro and Gozco Plantations.
Diversification Opportunities for Provident Agro and Gozco Plantations
-0.17 | Correlation Coefficient |
Good diversification
The 3 months correlation between Provident and Gozco is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Provident Agro Tbk and Gozco Plantations Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gozco Plantations Tbk and Provident Agro 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 Provident Agro Tbk are associated (or correlated) with Gozco Plantations. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gozco Plantations Tbk has no effect on the direction of Provident Agro i.e., Provident Agro and Gozco Plantations go up and down completely randomly.
Pair Corralation between Provident Agro and Gozco Plantations
Assuming the 90 days trading horizon Provident Agro is expected to generate 3.49 times less return on investment than Gozco Plantations. But when comparing it to its historical volatility, Provident Agro Tbk is 1.51 times less risky than Gozco Plantations. It trades about 0.01 of its potential returns per unit of risk. Gozco Plantations Tbk is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 9,200 in Gozco Plantations Tbk on August 27, 2024 and sell it today you would earn a total of 400.00 from holding Gozco Plantations Tbk or generate 4.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Provident Agro Tbk vs. Gozco Plantations Tbk
Performance |
| Timeline |
| Provident Agro Tbk |
| Gozco Plantations Tbk |
Provident Agro and Gozco Plantations Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Provident Agro and Gozco Plantations
The main advantage of trading using opposite Provident Agro and Gozco Plantations positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Provident Agro position performs unexpectedly, Gozco Plantations 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 Gozco Plantations will offset losses from the drop in Gozco Plantations' long position.The idea behind Provident Agro Tbk and Gozco Plantations Tbk 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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