Correlation Between Telkom Indonesia and Rafarma Pharmaceuticals

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

Diversification Opportunities for Telkom Indonesia and Rafarma Pharmaceuticals

0.23

Correlation Coefficient

Telkom Indonesia  Rafarma Pharmaceuticals

Modest diversification

The 3 months correlation between Telkom and Rafarma is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Telkom Indonesia Tbk and Rafarma Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rafarma Pharmaceuticals 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 Rafarma Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rafarma Pharmaceuticals has no effect on the direction of Telkom Indonesia i.e., Telkom Indonesia and Rafarma Pharmaceuticals go up and down completely randomly.

Pair Corralation between Telkom Indonesia and Rafarma Pharmaceuticals

Considering the 90-day investment horizon Telkom Indonesia Tbk is expected to under-perform the Rafarma Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, Telkom Indonesia Tbk is 8.03 times less risky than Rafarma Pharmaceuticals. The stock trades about -0.04 of its potential returns per unit of risk. The Rafarma Pharmaceuticals is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  47.00  in Rafarma Pharmaceuticals on October 23, 2024 and sell it today you would lose (32.00) from holding Rafarma Pharmaceuticals or give up 68.09% of portfolio value over 90 days.

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

Telkom Indonesia Tbk  vs.  Rafarma Pharmaceuticals

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 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.

Rafarma Pharmaceuticals

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rafarma Pharmaceuticals are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Rafarma Pharmaceuticals sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telkom Indonesia and Rafarma Pharmaceuticals

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

The idea behind Telkom Indonesia Tbk and Rafarma Pharmaceuticals 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.