Correlation Between Telkom Indonesia and NextSource Materials

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

Diversification Opportunities for Telkom Indonesia and NextSource Materials

0.82
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Telkom and NextSource is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Telkom Indonesia Tbk and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials 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 NextSource Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NextSource Materials has no effect on the direction of Telkom Indonesia i.e., Telkom Indonesia and NextSource Materials go up and down completely randomly.

Pair Corralation between Telkom Indonesia and NextSource Materials

Considering the 90-day investment horizon Telkom Indonesia Tbk is expected to generate 0.46 times more return on investment than NextSource Materials. However, Telkom Indonesia Tbk is 2.18 times less risky than NextSource Materials. It trades about -0.11 of its potential returns per unit of risk. NextSource Materials is currently generating about -0.09 per unit of risk. If you would invest  1,976  in Telkom Indonesia Tbk on September 7, 2024 and sell it today you would lose (260.00) from holding Telkom Indonesia Tbk or give up 13.16% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Telkom Indonesia Tbk  vs.  NextSource Materials

 Performance 
       Timeline  
Telkom Indonesia Tbk 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 unsteady performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.
NextSource Materials 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days NextSource Materials 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 fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Telkom Indonesia and NextSource Materials Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Telkom Indonesia and NextSource Materials

The main advantage of trading using opposite Telkom Indonesia and NextSource Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Telkom Indonesia position performs unexpectedly, NextSource Materials 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 NextSource Materials will offset losses from the drop in NextSource Materials' long position.
The idea behind Telkom Indonesia Tbk and NextSource Materials 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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