Correlation Between PT Astra and L’Oreal Co
Can any of the company-specific risk be diversified away by investing in both PT Astra and L’Oreal Co 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 L’Oreal Co 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 LOreal Co ADR, you can compare the effects of market volatilities on PT Astra and L’Oreal Co 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 L’Oreal Co. Check out your portfolio center. Please also check ongoing floating volatility patterns of PT Astra and L’Oreal Co.
Diversification Opportunities for PT Astra and L’Oreal Co
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between ASII and L’Oreal is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding PT Astra International and LOreal Co ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOreal Co 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 L’Oreal Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOreal Co ADR has no effect on the direction of PT Astra i.e., PT Astra and L’Oreal Co go up and down completely randomly.
Pair Corralation between PT Astra and L’Oreal Co
Given the investment horizon of 90 days PT Astra International is expected to generate 14.42 times more return on investment than L’Oreal Co. However, PT Astra is 14.42 times more volatile than LOreal Co ADR. It trades about 0.15 of its potential returns per unit of risk. LOreal Co ADR is currently generating about -0.27 per unit of risk. If you would invest 0.04 in PT Astra International on August 29, 2024 and sell it today you would earn a total of 0.01 from holding PT Astra International or generate 25.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
PT Astra International vs. LOreal Co ADR
Performance |
| Timeline |
| PT Astra International |
| LOreal Co ADR |
PT Astra and L’Oreal Co Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PT Astra and L’Oreal Co
The main advantage of trading using opposite PT Astra and L’Oreal Co positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PT Astra position performs unexpectedly, L’Oreal Co 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 L’Oreal Co will offset losses from the drop in L’Oreal Co's long position.| PT Astra vs. Embotelladora Andina SA | PT Astra vs. Embotelladora Andina SA | PT Astra vs. Apple Rush | PT Astra vs. Alkame Holdings |
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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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