Correlation Between Telkom Indonesia and Macmahon Holdings

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

Diversification Opportunities for Telkom Indonesia and Macmahon Holdings

0.64

Correlation Coefficient

Telkom Indonesia  Macmahon Holdings

Poor diversification

The 3 months correlation between Telkom and Macmahon is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Telkom Indonesia Tbk and Macmahon Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Macmahon Holdings 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 Macmahon Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Macmahon Holdings has no effect on the direction of Telkom Indonesia i.e., Telkom Indonesia and Macmahon Holdings go up and down completely randomly.

Pair Corralation between Telkom Indonesia and Macmahon Holdings

Considering the 90-day investment horizon Telkom Indonesia Tbk is expected to generate 1.16 times more return on investment than Macmahon Holdings. However, Telkom Indonesia is 1.16 times more volatile than Macmahon Holdings Limited. It trades about -0.06 of its potential returns per unit of risk. Macmahon Holdings Limited is currently generating about -0.18 per unit of risk. If you would invest  1,708  in Telkom Indonesia Tbk on November 29, 2024 and sell it today you would lose (150.00) from holding Telkom Indonesia Tbk or give up 8.78% 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.  Macmahon Holdings Limited

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 latest conflicting performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Macmahon Holdings

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Telkom Indonesia and Macmahon Holdings

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

The idea behind Telkom Indonesia Tbk and Macmahon Holdings Limited 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.