Correlation Between Indofood Sukses and Hongkong Land

Can any of the company-specific risk be diversified away by investing in both Indofood Sukses and Hongkong Land 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 Hongkong Land 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 Hongkong Land Holdings, you can compare the effects of market volatilities on Indofood Sukses and Hongkong Land 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 Hongkong Land. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indofood Sukses and Hongkong Land.

Diversification Opportunities for Indofood Sukses and Hongkong Land

0.66

Correlation Coefficient

Indofood Sukses  Hongkong Land

Poor diversification

The 3 months correlation between Indofood and Hongkong is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Indofood Sukses Makmur and Hongkong Land Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hongkong Land Holdings 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 Hongkong Land. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hongkong Land Holdings has no effect on the direction of Indofood Sukses i.e., Indofood Sukses and Hongkong Land go up and down completely randomly.

Pair Corralation between Indofood Sukses and Hongkong Land

Assuming the 90 days horizon Indofood Sukses Makmur is expected to generate 0.79 times more return on investment than Hongkong Land. However, Indofood Sukses Makmur is 1.27 times less risky than Hongkong Land. It trades about 0.03 of its potential returns per unit of risk. Hongkong Land Holdings is currently generating about 0.01 per unit of risk. If you would invest  1,979  in Indofood Sukses Makmur on June 23, 2024 and sell it today you would earn a total of  418.00  from holding Indofood Sukses Makmur or generate 21.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	66.0%
Values	Daily Returns

Indofood Sukses Makmur  vs.  Hongkong Land Holdings

Indofood Sukses Makmur

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Indofood Sukses Makmur are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile primary indicators, Indofood Sukses showed solid returns over the last few months and may actually be approaching a breakup point.

Hongkong Land Holdings

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Hongkong Land Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain technical and fundamental indicators, Hongkong Land reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Indofood Sukses and Hongkong Land

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

The idea behind Indofood Sukses Makmur and Hongkong Land Holdings 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.