Correlation Between Telkom Indonesia and Constellation Software

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

Diversification Opportunities for Telkom Indonesia and Constellation Software

-0.33

Correlation Coefficient

Telkom Indonesia  Constellation Software

Very good diversification

The 3 months correlation between Telkom and Constellation is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Telkom Indonesia Tbk and Constellation Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Software 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 Constellation Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Constellation Software has no effect on the direction of Telkom Indonesia i.e., Telkom Indonesia and Constellation Software go up and down completely randomly.

Pair Corralation between Telkom Indonesia and Constellation Software

Assuming the 90 days trading horizon Telkom Indonesia is expected to generate 1.65 times less return on investment than Constellation Software. In addition to that, Telkom Indonesia is 3.75 times more volatile than Constellation Software. It trades about 0.01 of its total potential returns per unit of risk. Constellation Software is currently generating about 0.09 per unit of volatility. If you would invest  151,969  in Constellation Software on October 10, 2024 and sell it today you would earn a total of  132,531  from holding Constellation Software or generate 87.21% return on investment over 90 days.

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

Telkom Indonesia Tbk  vs.  Constellation Software

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 uncertain forward indicators, Telkom Indonesia reported solid returns over the last few months and may actually be approaching a breakup point.

Constellation Software

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Constellation Software has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Constellation Software is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Telkom Indonesia and Constellation Software

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

The idea behind Telkom Indonesia Tbk and Constellation Software 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.