Correlation Between Indofood Sukses and Hormel Foods

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

Diversification Opportunities for Indofood Sukses and Hormel Foods

0.23
  Correlation Coefficient

Modest diversification

The 3 months correlation between Indofood and Hormel is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Indofood Sukses Makmur and Hormel Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hormel Foods 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 Hormel Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hormel Foods has no effect on the direction of Indofood Sukses i.e., Indofood Sukses and Hormel Foods go up and down completely randomly.

Pair Corralation between Indofood Sukses and Hormel Foods

Assuming the 90 days horizon Indofood Sukses Makmur is expected to generate 1.27 times more return on investment than Hormel Foods. However, Indofood Sukses is 1.27 times more volatile than Hormel Foods. It trades about -0.02 of its potential returns per unit of risk. Hormel Foods is currently generating about -0.03 per unit of risk. If you would invest  2,330  in Indofood Sukses Makmur on December 29, 2023 and sell it today you would lose (290.00) from holding Indofood Sukses Makmur or give up 12.45% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Indofood Sukses Makmur  vs.  Hormel Foods

 Performance 
       Timeline  
Indofood Sukses Makmur 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Indofood Sukses Makmur has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Indofood Sukses is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.
Hormel Foods 

Risk-Adjusted Performance

5 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Hormel Foods are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile basic indicators, Hormel Foods may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Indofood Sukses and Hormel Foods Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Indofood Sukses and Hormel Foods

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

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