Correlation Between Telkom Indonesia and Sterling Construction

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

Diversification Opportunities for Telkom Indonesia and Sterling Construction

0.62

Correlation Coefficient

Telkom Indonesia  Sterling Construction

Poor diversification

The 3 months correlation between Telkom and Sterling is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Telkom Indonesia Tbk and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction 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 Sterling Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sterling Construction has no effect on the direction of Telkom Indonesia i.e., Telkom Indonesia and Sterling Construction go up and down completely randomly.

Pair Corralation between Telkom Indonesia and Sterling Construction

Assuming the 90 days trading horizon Telkom Indonesia Tbk is expected to generate 1.84 times more return on investment than Sterling Construction. However, Telkom Indonesia is 1.84 times more volatile than Sterling Construction. It trades about 0.01 of its potential returns per unit of risk. Sterling Construction is currently generating about -0.11 per unit of risk. If you would invest  15.00  in Telkom Indonesia Tbk on December 30, 2024 and sell it today you would lose (3.00) from holding Telkom Indonesia Tbk or give up 20.0% of portfolio value over 90 days.

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

Telkom Indonesia Tbk  vs.  Sterling Construction

Telkom Indonesia Tbk

Risk-Adjusted Performance

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Sterling Construction

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sterling Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Telkom Indonesia and Sterling Construction

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

The idea behind Telkom Indonesia Tbk and Sterling Construction 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.