Correlation Between Telkom Indonesia and SM Investments

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

Diversification Opportunities for Telkom Indonesia and SM Investments

-0.76

Correlation Coefficient

Telkom Indonesia  SM Investments

Pay attention - limited upside

The 3 months correlation between Telkom and SVTMF is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Telkom Indonesia Tbk and SM Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Investments 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 SM Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Investments has no effect on the direction of Telkom Indonesia i.e., Telkom Indonesia and SM Investments go up and down completely randomly.

Pair Corralation between Telkom Indonesia and SM Investments

Considering the 90-day investment horizon Telkom Indonesia Tbk is expected to under-perform the SM Investments. In addition to that, Telkom Indonesia is 3.49 times more volatile than SM Investments. It trades about -0.02 of its total potential returns per unit of risk. SM Investments is currently generating about 0.22 per unit of volatility. If you would invest  1,600  in SM Investments on October 7, 2024 and sell it today you would earn a total of  40.00  from holding SM Investments or generate 2.5% return on investment over 90 days.

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

Telkom Indonesia Tbk  vs.  SM Investments

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.

SM Investments

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SM Investments are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain primary indicators, SM Investments reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telkom Indonesia and SM Investments

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

The idea behind Telkom Indonesia Tbk and SM Investments 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.