Correlation Between Telkom Indonesia and LG Electronics

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

Diversification Opportunities for Telkom Indonesia and LG Electronics

0.31

Correlation Coefficient

Telkom Indonesia  LG Electronics

Weak diversification

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

Pair Corralation between Telkom Indonesia and LG Electronics

Assuming the 90 days trading horizon Telkom Indonesia Tbk is expected to generate 3.68 times more return on investment than LG Electronics. However, Telkom Indonesia is 3.68 times more volatile than LG Electronics. It trades about 0.02 of its potential returns per unit of risk. LG Electronics is currently generating about -0.07 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 Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Telkom Indonesia Tbk  vs.  LG Electronics

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.

LG Electronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days LG Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Telkom Indonesia and LG Electronics

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

The idea behind Telkom Indonesia Tbk and LG Electronics 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.