Correlation Between Telkom Indonesia and Pacific West

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

Diversification Opportunities for Telkom Indonesia and Pacific West

-0.6

Correlation Coefficient

Telkom Indonesia  Pacific West

Excellent diversification

The 3 months correlation between Telkom and Pacific is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Telkom Indonesia Tbk and Pacific West Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific West Bancorp 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 Pacific West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific West Bancorp has no effect on the direction of Telkom Indonesia i.e., Telkom Indonesia and Pacific West go up and down completely randomly.

Pair Corralation between Telkom Indonesia and Pacific West

Considering the 90-day investment horizon Telkom Indonesia Tbk is expected to generate 0.53 times more return on investment than Pacific West. However, Telkom Indonesia Tbk is 1.88 times less risky than Pacific West. It trades about -0.12 of its potential returns per unit of risk. Pacific West Bancorp is currently generating about -0.07 per unit of risk. If you would invest  1,726  in Telkom Indonesia Tbk on October 11, 2024 and sell it today you would lose (96.00) from holding Telkom Indonesia Tbk or give up 5.56% of portfolio value over 90 days.

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

Telkom Indonesia Tbk  vs.  Pacific West Bancorp

Telkom Indonesia Tbk

Risk-Adjusted Performance

0 of 100

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

Pacific West Bancorp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pacific West Bancorp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, Pacific West is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Telkom Indonesia and Pacific West

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

The idea behind Telkom Indonesia Tbk and Pacific West Bancorp 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..