Correlation Between Indonesian Tobacco and Smartfren Telecom

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

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

Diversification Opportunities for Indonesian Tobacco and Smartfren Telecom

-0.51

Correlation Coefficient

Indonesian Tobacco  Smartfren Telecom

Excellent diversification

The 3 months correlation between Indonesian and Smartfren is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Indonesian Tobacco Tbk and Smartfren Telecom Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smartfren Telecom Tbk and Indonesian Tobacco 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 Indonesian Tobacco Tbk are associated (or correlated) with Smartfren Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smartfren Telecom Tbk has no effect on the direction of Indonesian Tobacco i.e., Indonesian Tobacco and Smartfren Telecom go up and down completely randomly.

Pair Corralation between Indonesian Tobacco and Smartfren Telecom

Assuming the 90 days trading horizon Indonesian Tobacco Tbk is expected to generate 0.32 times more return on investment than Smartfren Telecom. However, Indonesian Tobacco Tbk is 3.12 times less risky than Smartfren Telecom. It trades about 0.01 of its potential returns per unit of risk. Smartfren Telecom Tbk is currently generating about -0.04 per unit of risk. If you would invest  26,200  in Indonesian Tobacco Tbk on September 3, 2024 and sell it today you would earn a total of  200.00  from holding Indonesian Tobacco Tbk or generate 0.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Indonesian Tobacco Tbk  vs.  Smartfren Telecom Tbk

Indonesian Tobacco Tbk

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Indonesian Tobacco Tbk are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Indonesian Tobacco is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Smartfren Telecom Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smartfren Telecom Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Indonesian Tobacco and Smartfren Telecom

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

The idea behind Indonesian Tobacco Tbk and Smartfren Telecom 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.