Correlation Between Optima Prima and Smartfren Telecom

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

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

Diversification Opportunities for Optima Prima and Smartfren Telecom

-0.21

Correlation Coefficient

Optima Prima  Smartfren Telecom

Very good diversification

The 3 months correlation between Optima and Smartfren is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Optima Prima Metal 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 Optima Prima 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 Optima Prima Metal 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 Optima Prima i.e., Optima Prima and Smartfren Telecom go up and down completely randomly.

Pair Corralation between Optima Prima and Smartfren Telecom

Assuming the 90 days trading horizon Optima Prima Metal is expected to under-perform the Smartfren Telecom. But the stock apears to be less risky and, when comparing its historical volatility, Optima Prima Metal is 3.94 times less risky than Smartfren Telecom. The stock trades about -0.09 of its potential returns per unit of risk. The Smartfren Telecom Tbk is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,200  in Smartfren Telecom Tbk on December 31, 2024 and sell it today you would earn a total of  200.00  from holding Smartfren Telecom Tbk or generate 9.09% return on investment over 90 days.

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

Optima Prima Metal  vs.  Smartfren Telecom Tbk

Optima Prima Metal

Risk-Adjusted Performance

Very Weak

Over the last 90 days Optima Prima Metal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Optima Prima 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

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Smartfren Telecom Tbk are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Smartfren Telecom may actually be approaching a critical reversion point that can send shares even higher in May 2025.

Pair Trading with Optima Prima and Smartfren Telecom

The main advantage of trading using opposite Optima Prima and Smartfren Telecom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Optima Prima 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 Optima Prima Metal 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.