Correlation Between Australian Agricultural and Astra Agro

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

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

Diversification Opportunities for Australian Agricultural and Astra Agro

0.08

Correlation Coefficient

Australian Agricultural  Astra Agro

Significant diversification

The 3 months correlation between Australian and Astra is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Australian Agricultural and Astra Agro Lestari in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Astra Agro Lestari and Australian Agricultural 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 Australian Agricultural are associated (or correlated) with Astra Agro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Astra Agro Lestari has no effect on the direction of Australian Agricultural i.e., Australian Agricultural and Astra Agro go up and down completely randomly.

Pair Corralation between Australian Agricultural and Astra Agro

Assuming the 90 days horizon Australian Agricultural is expected to generate 0.78 times more return on investment than Astra Agro. However, Australian Agricultural is 1.29 times less risky than Astra Agro. It trades about -0.01 of its potential returns per unit of risk. Astra Agro Lestari is currently generating about -0.05 per unit of risk. If you would invest  96.00  in Australian Agricultural on September 14, 2024 and sell it today you would lose (9.00) from holding Australian Agricultural or give up 9.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	47.01%
Values	Daily Returns

Australian Agricultural  vs.  Astra Agro Lestari

Australian Agricultural

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Australian Agricultural has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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. In spite of fairly strong basic indicators, Astra Agro is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Australian Agricultural and Astra Agro

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

The idea behind Australian Agricultural and Astra Agro Lestari 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.