Correlation Between Telkom Indonesia and Telefonica

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

Diversification Opportunities for Telkom Indonesia and Telefonica

-0.84

Correlation Coefficient

Telkom Indonesia  Telefonica

Pay attention - limited upside

The 3 months correlation between Telkom and Telefonica is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Telkom Indonesia Tbk and Telefonica SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonica SA ADR 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 Telefonica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefonica SA ADR has no effect on the direction of Telkom Indonesia i.e., Telkom Indonesia and Telefonica go up and down completely randomly.

Pair Corralation between Telkom Indonesia and Telefonica

Considering the 90-day investment horizon Telkom Indonesia Tbk is expected to under-perform the Telefonica. In addition to that, Telkom Indonesia is 2.2 times more volatile than Telefonica SA ADR. It trades about -0.07 of its total potential returns per unit of risk. Telefonica SA ADR is currently generating about 0.23 per unit of volatility. If you would invest  402.00  in Telefonica SA ADR on December 30, 2024 and sell it today you would earn a total of  61.00  from holding Telefonica SA ADR or generate 15.17% return on investment over 90 days.

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

Telkom Indonesia Tbk  vs.  Telefonica SA ADR

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.

Telefonica SA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonica SA ADR are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Telefonica reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telkom Indonesia and Telefonica

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

The idea behind Telkom Indonesia Tbk and Telefonica SA ADR 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.