Correlation Between Telkom Indonesia and First National

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

Diversification Opportunities for Telkom Indonesia and First National

-0.39

Correlation Coefficient

Telkom Indonesia  First National

Very good diversification

The 3 months correlation between Telkom and First is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Telkom Indonesia Tbk and First National Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First National Bank 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 First National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First National Bank has no effect on the direction of Telkom Indonesia i.e., Telkom Indonesia and First National go up and down completely randomly.

Pair Corralation between Telkom Indonesia and First National

Considering the 90-day investment horizon Telkom Indonesia Tbk is expected to under-perform the First National. In addition to that, Telkom Indonesia is 1.5 times more volatile than First National Bank. It trades about -0.02 of its total potential returns per unit of risk. First National Bank is currently generating about 0.07 per unit of volatility. If you would invest  22,112  in First National Bank on December 19, 2024 and sell it today you would earn a total of  1,281  from holding First National Bank or generate 5.79% 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.  First National Bank

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 quite persistent essential indicators, Telkom Indonesia is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

First National Bank

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First National Bank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, First National may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Telkom Indonesia and First National

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

The idea behind Telkom Indonesia Tbk and First National Bank 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.