Correlation Between PT Astra and FirstRand

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

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

Diversification Opportunities for PT Astra and FirstRand

0.2

Correlation Coefficient

PT Astra  FirstRand

Modest diversification

The 3 months correlation between PTAIF and FirstRand is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding PT Astra International and FirstRand Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FirstRand ADR and PT Astra 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 PT Astra International are associated (or correlated) with FirstRand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FirstRand ADR has no effect on the direction of PT Astra i.e., PT Astra and FirstRand go up and down completely randomly.

Pair Corralation between PT Astra and FirstRand

Assuming the 90 days horizon PT Astra International is expected to generate 1.99 times more return on investment than FirstRand. However, PT Astra is 1.99 times more volatile than FirstRand Ltd ADR. It trades about 0.0 of its potential returns per unit of risk. FirstRand Ltd ADR is currently generating about -0.09 per unit of risk. If you would invest  30.00  in PT Astra International on December 5, 2024 and sell it today you would lose (1.00) from holding PT Astra International or give up 3.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	81.36%
Values	Daily Returns

PT Astra International  vs.  FirstRand Ltd ADR

PT Astra International

Risk-Adjusted Performance

Very Weak

Over the last 90 days PT Astra International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, PT Astra is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

FirstRand ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days FirstRand Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with PT Astra and FirstRand

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

The idea behind PT Astra International and FirstRand Ltd ADR 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.