Correlation Between Fast Food and Hero Supermarket

Can any of the company-specific risk be diversified away by investing in both Fast Food and Hero Supermarket 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 Fast Food and Hero Supermarket into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Fast Food Indonesia and Hero Supermarket Tbk, you can compare the effects of market volatilities on Fast Food and Hero Supermarket 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 Fast Food with a short position of Hero Supermarket. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fast Food and Hero Supermarket.

Diversification Opportunities for Fast Food and Hero Supermarket

-0.7

Correlation Coefficient

Fast Food  Hero Supermarket

Excellent diversification

The 3 months correlation between Fast and Hero is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Fast Food Indonesia and Hero Supermarket Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hero Supermarket Tbk and Fast Food 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 Fast Food Indonesia are associated (or correlated) with Hero Supermarket. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hero Supermarket Tbk has no effect on the direction of Fast Food i.e., Fast Food and Hero Supermarket go up and down completely randomly.

Pair Corralation between Fast Food and Hero Supermarket

Assuming the 90 days trading horizon Fast Food is expected to generate 2.1 times less return on investment than Hero Supermarket. But when comparing it to its historical volatility, Fast Food Indonesia is 1.12 times less risky than Hero Supermarket. It trades about 0.13 of its potential returns per unit of risk. Hero Supermarket Tbk is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  72,000  in Hero Supermarket Tbk on March 18, 2024 and sell it today you would earn a total of  58,000  from holding Hero Supermarket Tbk or generate 80.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	93.75%
Values	Daily Returns

Fast Food Indonesia  vs.  Hero Supermarket Tbk

Fast Food Indonesia

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fast Food Indonesia are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Fast Food disclosed solid returns over the last few months and may actually be approaching a breakup point.

Hero Supermarket Tbk

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hero Supermarket Tbk are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Hero Supermarket disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fast Food and Hero Supermarket

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

The idea behind Fast Food Indonesia and Hero Supermarket 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.