Correlation Between H-FARM SPA and Telkom Indonesia

Can any of the company-specific risk be diversified away by investing in both H-FARM SPA and Telkom Indonesia 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 H-FARM SPA and Telkom Indonesia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between H FARM SPA and Telkom Indonesia Tbk, you can compare the effects of market volatilities on H-FARM SPA and Telkom Indonesia 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 H-FARM SPA with a short position of Telkom Indonesia. Check out your portfolio center. Please also check ongoing floating volatility patterns of H-FARM SPA and Telkom Indonesia.

Diversification Opportunities for H-FARM SPA and Telkom Indonesia

0.61

Correlation Coefficient

H-FARM SPA  Telkom Indonesia

Poor diversification

The 3 months correlation between H-FARM and Telkom is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding H FARM SPA and Telkom Indonesia Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telkom Indonesia Tbk and H-FARM SPA 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 H FARM SPA are associated (or correlated) with Telkom Indonesia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telkom Indonesia Tbk has no effect on the direction of H-FARM SPA i.e., H-FARM SPA and Telkom Indonesia go up and down completely randomly.

Pair Corralation between H-FARM SPA and Telkom Indonesia

Assuming the 90 days horizon H FARM SPA is expected to under-perform the Telkom Indonesia. In addition to that, H-FARM SPA is 1.14 times more volatile than Telkom Indonesia Tbk. It trades about -0.04 of its total potential returns per unit of risk. Telkom Indonesia Tbk is currently generating about -0.01 per unit of volatility. If you would invest  16.00  in Telkom Indonesia Tbk on October 4, 2024 and sell it today you would lose (1.00) from holding Telkom Indonesia Tbk or give up 6.25% of portfolio value over 90 days.

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

H FARM SPA  vs.  Telkom Indonesia Tbk

H FARM SPA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days H FARM SPA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain 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.

Telkom Indonesia Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telkom Indonesia Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Telkom Indonesia is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with H-FARM SPA and Telkom Indonesia

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

The idea behind H FARM SPA and Telkom Indonesia Tbk 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.