Correlation Between Indofood Sukses and Astra International

Can any of the company-specific risk be diversified away by investing in both Indofood Sukses and Astra International 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 Indofood Sukses and Astra International into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Indofood Sukses Makmur and Astra International Tbk, you can compare the effects of market volatilities on Indofood Sukses and Astra International 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 Indofood Sukses with a short position of Astra International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indofood Sukses and Astra International.

Diversification Opportunities for Indofood Sukses and Astra International

0.71

Correlation Coefficient

Indofood Sukses  Astra International

Poor diversification

The 3 months correlation between Indofood and Astra is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Indofood Sukses Makmur and Astra International Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Astra International Tbk and Indofood Sukses 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 Indofood Sukses Makmur are associated (or correlated) with Astra International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Astra International Tbk has no effect on the direction of Indofood Sukses i.e., Indofood Sukses and Astra International go up and down completely randomly.

Pair Corralation between Indofood Sukses and Astra International

Assuming the 90 days trading horizon Indofood Sukses Makmur is expected to under-perform the Astra International. But the stock apears to be less risky and, when comparing its historical volatility, Indofood Sukses Makmur is 1.27 times less risky than Astra International. The stock trades about -0.04 of its potential returns per unit of risk. The Astra International Tbk is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  469,985  in Astra International Tbk on March 7, 2024 and sell it today you would lose (11,985) from holding Astra International Tbk or give up 2.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Indofood Sukses Makmur  vs.  Astra International Tbk

Indofood Sukses Makmur

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indofood Sukses Makmur has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Indofood Sukses is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Astra International Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Astra International Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Astra International is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Indofood Sukses and Astra International

The main advantage of trading using opposite Indofood Sukses and Astra International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Indofood Sukses position performs unexpectedly, Astra International 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 Astra International will offset losses from the drop in Astra International's long position.

The idea behind Indofood Sukses Makmur and Astra International 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.

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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.