Correlation Between Telkom Indonesia and CRRC

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

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

Diversification Opportunities for Telkom Indonesia and CRRC

-0.31

Correlation Coefficient

Telkom Indonesia  CRRC

Very good diversification

The 3 months correlation between Telkom and CRRC is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Telkom Indonesia Tbk and CRRC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CRRC Limited and Telkom Indonesia 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 Telkom Indonesia Tbk are associated (or correlated) with CRRC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CRRC Limited has no effect on the direction of Telkom Indonesia i.e., Telkom Indonesia and CRRC go up and down completely randomly.

Pair Corralation between Telkom Indonesia and CRRC

Assuming the 90 days trading horizon Telkom Indonesia is expected to generate 3.64 times less return on investment than CRRC. In addition to that, Telkom Indonesia is 1.3 times more volatile than CRRC Limited. It trades about 0.02 of its total potential returns per unit of risk. CRRC Limited is currently generating about 0.09 per unit of volatility. If you would invest  13.00  in CRRC Limited on September 23, 2024 and sell it today you would earn a total of  48.00  from holding CRRC Limited or generate 369.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Telkom Indonesia Tbk  vs.  CRRC Limited

Telkom Indonesia Tbk

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Telkom Indonesia Tbk are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, Telkom Indonesia may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CRRC Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CRRC Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CRRC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telkom Indonesia and CRRC

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

The idea behind Telkom Indonesia Tbk and CRRC Limited 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.