Correlation Between PT Astra and Malacca Straits

Can any of the company-specific risk be diversified away by investing in both PT Astra and Malacca Straits 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 Malacca Straits 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 Malacca Straits Acquisition, you can compare the effects of market volatilities on PT Astra and Malacca Straits 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 Malacca Straits. Check out your portfolio center. Please also check ongoing floating volatility patterns of PT Astra and Malacca Straits.

Diversification Opportunities for PT Astra and Malacca Straits

-0.53

Correlation Coefficient

PT Astra  Malacca Straits

Excellent diversification

The 3 months correlation between PTAIF and Malacca is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding PT Astra International and Malacca Straits Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Malacca Straits Acqu 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 Malacca Straits. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Malacca Straits Acqu has no effect on the direction of PT Astra i.e., PT Astra and Malacca Straits go up and down completely randomly.

Pair Corralation between PT Astra and Malacca Straits

Assuming the 90 days horizon PT Astra is expected to generate 22.32 times less return on investment than Malacca Straits. But when comparing it to its historical volatility, PT Astra International is 6.81 times less risky than Malacca Straits. It trades about 0.04 of its potential returns per unit of risk. Malacca Straits Acquisition is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2.00  in Malacca Straits Acquisition on September 9, 2024 and sell it today you would lose (1.86) from holding Malacca Straits Acquisition or give up 93.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	25.95%
Values	Daily Returns

PT Astra International  vs.  Malacca Straits Acquisition

PT Astra International

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PT Astra International are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating forward indicators, PT Astra reported solid returns over the last few months and may actually be approaching a breakup point.

Malacca Straits Acqu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Malacca Straits Acquisition has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, Malacca Straits is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with PT Astra and Malacca Straits

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

The idea behind PT Astra International and Malacca Straits Acquisition 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.