Correlation Between Nippon Indosari and Astra Agro

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

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

Diversification Opportunities for Nippon Indosari and Astra Agro

0.65

Correlation Coefficient

Nippon Indosari  Astra Agro

Poor diversification

The 3 months correlation between Nippon and Astra is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Indosari Corpindo 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 Nippon Indosari 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 Nippon Indosari Corpindo 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 Nippon Indosari i.e., Nippon Indosari and Astra Agro go up and down completely randomly.

Pair Corralation between Nippon Indosari and Astra Agro

Assuming the 90 days trading horizon Nippon Indosari Corpindo is expected to generate 0.39 times more return on investment than Astra Agro. However, Nippon Indosari Corpindo is 2.53 times less risky than Astra Agro. It trades about -0.13 of its potential returns per unit of risk. Astra Agro Lestari is currently generating about -0.06 per unit of risk. If you would invest  98,000  in Nippon Indosari Corpindo on October 10, 2024 and sell it today you would lose (1,500) from holding Nippon Indosari Corpindo or give up 1.53% of portfolio value over 90 days.

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

Nippon Indosari Corpindo  vs.  Astra Agro Lestari

Nippon Indosari Corpindo

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 latest conflicting performance, the Stock's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Nippon Indosari and Astra Agro

The main advantage of trading using opposite Nippon Indosari and Astra Agro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nippon Indosari 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 Nippon Indosari Corpindo 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.