Correlation Between MTN Group and PT Indosat

Can any of the company-specific risk be diversified away by investing in both MTN Group and PT Indosat 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 MTN Group and PT Indosat into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MTN Group Ltd and PT Indosat Tbk, you can compare the effects of market volatilities on MTN Group and PT Indosat 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 MTN Group with a short position of PT Indosat. Check out your portfolio center. Please also check ongoing floating volatility patterns of MTN Group and PT Indosat.

Diversification Opportunities for MTN Group and PT Indosat

0.25

Correlation Coefficient

MTN Group  PT Indosat

Modest diversification

The 3 months correlation between MTN and PTITF is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding MTN Group Ltd and PT Indosat Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Indosat Tbk and MTN Group 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 MTN Group Ltd are associated (or correlated) with PT Indosat. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Indosat Tbk has no effect on the direction of MTN Group i.e., MTN Group and PT Indosat go up and down completely randomly.

Pair Corralation between MTN Group and PT Indosat

Assuming the 90 days horizon MTN Group Ltd is expected to generate 0.23 times more return on investment than PT Indosat. However, MTN Group Ltd is 4.36 times less risky than PT Indosat. It trades about 0.13 of its potential returns per unit of risk. PT Indosat Tbk is currently generating about -0.25 per unit of risk. If you would invest  453.00  in MTN Group Ltd on September 30, 2024 and sell it today you would earn a total of  41.00  from holding MTN Group Ltd or generate 9.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

MTN Group Ltd  vs.  PT Indosat Tbk

MTN Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MTN Group Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, MTN Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

PT Indosat Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PT Indosat Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with MTN Group and PT Indosat

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

The idea behind MTN Group Ltd and PT Indosat 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.