Correlation Between Provident Agro and Vale Indonesia

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

Diversification Opportunities for Provident Agro and Vale Indonesia

-0.18

Correlation Coefficient

Provident Agro  Vale Indonesia

Good diversification

The 3 months correlation between Provident and Vale is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Provident Agro Tbk and Vale Indonesia Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale Indonesia 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 Vale Indonesia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale Indonesia Tbk has no effect on the direction of Provident Agro i.e., Provident Agro and Vale Indonesia go up and down completely randomly.

Pair Corralation between Provident Agro and Vale Indonesia

Assuming the 90 days trading horizon Provident Agro Tbk is expected to under-perform the Vale Indonesia. In addition to that, Provident Agro is 1.43 times more volatile than Vale Indonesia Tbk. It trades about -0.06 of its total potential returns per unit of risk. Vale Indonesia Tbk is currently generating about 0.08 per unit of volatility. If you would invest  366,000  in Vale Indonesia Tbk on February 7, 2024 and sell it today you would earn a total of  41,000  from holding Vale Indonesia Tbk or generate 11.2% 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.  Vale Indonesia Tbk

Provident Agro Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Provident Agro Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in June 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Vale Indonesia Tbk

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vale Indonesia Tbk are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Vale Indonesia disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Provident Agro and Vale Indonesia

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

The idea behind Provident Agro Tbk and Vale Indonesia 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.