Correlation Between Telkom Indonesia and China Construction

Can any of the company-specific risk be diversified away by investing in both Telkom Indonesia and China Construction 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 China Construction 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 China Construction Bank, you can compare the effects of market volatilities on Telkom Indonesia and China Construction 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 China Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Telkom Indonesia and China Construction.

Diversification Opportunities for Telkom Indonesia and China Construction

-0.48

Correlation Coefficient

Telkom Indonesia  China Construction

Very good diversification

The 3 months correlation between Telkom and China is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Telkom Indonesia Tbk and China Construction Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Construction Bank 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 China Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Construction Bank has no effect on the direction of Telkom Indonesia i.e., Telkom Indonesia and China Construction go up and down completely randomly.

Pair Corralation between Telkom Indonesia and China Construction

Assuming the 90 days trading horizon Telkom Indonesia is expected to generate 4.02 times less return on investment than China Construction. In addition to that, Telkom Indonesia is 2.01 times more volatile than China Construction Bank. It trades about 0.02 of its total potential returns per unit of risk. China Construction Bank is currently generating about 0.16 per unit of volatility. If you would invest  56.00  in China Construction Bank on December 20, 2024 and sell it today you would earn a total of  26.00  from holding China Construction Bank or generate 46.43% return on investment over 90 days.

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

Telkom Indonesia Tbk  vs.  China Construction Bank

Telkom Indonesia Tbk

Risk-Adjusted Performance

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 April 2025.

China Construction Bank

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Construction Bank are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, China Construction reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telkom Indonesia and China Construction

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

The idea behind Telkom Indonesia Tbk and China Construction Bank 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.