Correlation Between Astra Agro and Red Planet

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

By analyzing existing cross correlation between Astra Agro Lestari and Red Planet Indonesia, you can compare the effects of market volatilities on Astra Agro and Red Planet 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 Astra Agro with a short position of Red Planet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Astra Agro and Red Planet.

Diversification Opportunities for Astra Agro and Red Planet

-0.44

Correlation Coefficient

Astra Agro  Red Planet

Very good diversification

The 3 months correlation between Astra and Red is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Astra Agro Lestari and Red Planet Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Planet Indonesia and Astra 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 Astra Agro Lestari are associated (or correlated) with Red Planet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Planet Indonesia has no effect on the direction of Astra Agro i.e., Astra Agro and Red Planet go up and down completely randomly.

Pair Corralation between Astra Agro and Red Planet

Assuming the 90 days trading horizon Astra Agro Lestari is expected to under-perform the Red Planet. But the stock apears to be less risky and, when comparing its historical volatility, Astra Agro Lestari is 2.77 times less risky than Red Planet. The stock trades about -0.01 of its potential returns per unit of risk. The Red Planet Indonesia is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  2,300  in Red Planet Indonesia on September 5, 2024 and sell it today you would earn a total of  900.00  from holding Red Planet Indonesia or generate 39.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Astra Agro Lestari  vs.  Red Planet Indonesia

Astra Agro Lestari

Risk-Adjusted Performance

0 of 100

Very Weak

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

Red Planet Indonesia

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Red Planet Indonesia are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Red Planet disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Astra Agro and Red Planet

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

The idea behind Astra Agro Lestari and Red Planet Indonesia 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.