Correlation Between PT Astra and Nippon Steel

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

Diversification Opportunities for PT Astra and Nippon Steel

-0.71

Correlation Coefficient

PT Astra  Nippon Steel

Pay attention - limited upside

The 3 months correlation between PTAIF and Nippon is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding PT Astra International and Nippon Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Steel 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 Nippon Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nippon Steel has no effect on the direction of PT Astra i.e., PT Astra and Nippon Steel go up and down completely randomly.

Pair Corralation between PT Astra and Nippon Steel

Assuming the 90 days horizon PT Astra International is expected to generate 0.78 times more return on investment than Nippon Steel. However, PT Astra International is 1.29 times less risky than Nippon Steel. It trades about 0.21 of its potential returns per unit of risk. Nippon Steel is currently generating about -0.05 per unit of risk. If you would invest  29.00  in PT Astra International on August 31, 2024 and sell it today you would earn a total of  8.00  from holding PT Astra International or generate 27.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

PT Astra International  vs.  Nippon Steel

PT Astra International

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in PT Astra International are ranked lower than 16 (%) 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.

Nippon Steel

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with PT Astra and Nippon Steel

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

The idea behind PT Astra International and Nippon Steel 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.