Correlation Between Telkom Indonesia and PNC Financial

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

Diversification Opportunities for Telkom Indonesia and PNC Financial

-0.68

Correlation Coefficient

Telkom Indonesia  PNC Financial

Excellent diversification

The 3 months correlation between Telkom and PNC is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Telkom Indonesia Tbk and The PNC Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PNC Financial 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 PNC Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PNC Financial has no effect on the direction of Telkom Indonesia i.e., Telkom Indonesia and PNC Financial go up and down completely randomly.

Pair Corralation between Telkom Indonesia and PNC Financial

Assuming the 90 days trading horizon Telkom Indonesia Tbk is expected to under-perform the PNC Financial. In addition to that, Telkom Indonesia is 3.71 times more volatile than The PNC Financial. It trades about -0.01 of its total potential returns per unit of risk. The PNC Financial is currently generating about 0.2 per unit of volatility. If you would invest  15,656  in The PNC Financial on September 12, 2024 and sell it today you would earn a total of  3,744  from holding The PNC Financial or generate 23.91% return on investment over 90 days.

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

Telkom Indonesia Tbk  vs.  The PNC Financial

Telkom Indonesia Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telkom Indonesia Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, Telkom Indonesia is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

PNC Financial

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The PNC Financial are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PNC Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telkom Indonesia and PNC Financial

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

The idea behind Telkom Indonesia Tbk and The PNC Financial 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.