Correlation Between Telkom Indonesia and DFS Furniture

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

Diversification Opportunities for Telkom Indonesia and DFS Furniture

-0.19

Correlation Coefficient

Telkom Indonesia  DFS Furniture

Good diversification

The 3 months correlation between Telkom and DFS is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Telkom Indonesia Tbk and DFS Furniture PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DFS Furniture PLC 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 DFS Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DFS Furniture PLC has no effect on the direction of Telkom Indonesia i.e., Telkom Indonesia and DFS Furniture go up and down completely randomly.

Pair Corralation between Telkom Indonesia and DFS Furniture

Assuming the 90 days trading horizon Telkom Indonesia Tbk is expected to generate 4.5 times more return on investment than DFS Furniture. However, Telkom Indonesia is 4.5 times more volatile than DFS Furniture PLC. It trades about 0.02 of its potential returns per unit of risk. DFS Furniture PLC is currently generating about 0.03 per unit of risk. If you would invest  15.00  in Telkom Indonesia Tbk on November 29, 2024 and sell it today you would lose (2.00) from holding Telkom Indonesia Tbk or give up 13.33% of portfolio value over 90 days.

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

Telkom Indonesia Tbk  vs.  DFS Furniture PLC

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 reported solid returns over the last few months and may actually be approaching a breakup point.

DFS Furniture PLC

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in DFS Furniture PLC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, DFS Furniture is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Telkom Indonesia and DFS Furniture

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

The idea behind Telkom Indonesia Tbk and DFS Furniture PLC 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.