Correlation Between Amazon and Telkom Indonesia

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

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

Diversification Opportunities for Amazon and Telkom Indonesia

-0.68

Correlation Coefficient

Amazon  Telkom Indonesia

Excellent diversification

The 3 months correlation between Amazon and Telkom is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc 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 Amazon 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 Amazon Inc 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 Amazon i.e., Amazon and Telkom Indonesia go up and down completely randomly.

Pair Corralation between Amazon and Telkom Indonesia

Assuming the 90 days trading horizon Amazon Inc is expected to generate 0.4 times more return on investment than Telkom Indonesia. However, Amazon Inc is 2.48 times less risky than Telkom Indonesia. It trades about 0.43 of its potential returns per unit of risk. Telkom Indonesia Tbk is currently generating about -0.17 per unit of risk. If you would invest  19,064  in Amazon Inc on September 21, 2024 and sell it today you would earn a total of  2,591  from holding Amazon Inc or generate 13.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

Amazon Inc  vs.  Telkom Indonesia Tbk

Amazon Inc

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Amazon displayed solid returns over the last few months and may actually be approaching a breakup point.

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 fragile performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Amazon and Telkom Indonesia

The main advantage of trading using opposite Amazon and Telkom Indonesia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon 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 Amazon Inc 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.