Correlation Between Telkom Indonesia and PT Bumi

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

Diversification Opportunities for Telkom Indonesia and PT Bumi

-0.17

Correlation Coefficient

Telkom Indonesia  PT Bumi

Good diversification

The 3 months correlation between Telkom and PJM is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Telkom Indonesia Tbk and PT Bumi Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Bumi Resources 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 PT Bumi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Bumi Resources has no effect on the direction of Telkom Indonesia i.e., Telkom Indonesia and PT Bumi go up and down completely randomly.

Pair Corralation between Telkom Indonesia and PT Bumi

Assuming the 90 days trading horizon Telkom Indonesia Tbk is expected to generate 1.43 times more return on investment than PT Bumi. However, Telkom Indonesia is 1.43 times more volatile than PT Bumi Resources. It trades about 0.03 of its potential returns per unit of risk. PT Bumi Resources is currently generating about -0.03 per unit of risk. If you would invest  16.00  in Telkom Indonesia Tbk on October 25, 2024 and sell it today you would lose (1.00) from holding Telkom Indonesia Tbk or give up 6.25% 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.  PT Bumi Resources

Telkom Indonesia Tbk

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Telkom Indonesia Tbk are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady forward indicators, Telkom Indonesia reported solid returns over the last few months and may actually be approaching a breakup point.

PT Bumi Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PT Bumi Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Telkom Indonesia and PT Bumi

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

The idea behind Telkom Indonesia Tbk and PT Bumi Resources 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.