Correlation Between Telkom Indonesia and Indofood Cbp

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

Diversification Opportunities for Telkom Indonesia and Indofood Cbp

0.04

Correlation Coefficient

Telkom Indonesia  Indofood Cbp

Significant diversification

The 3 months correlation between Telkom and Indofood is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Telkom Indonesia Tbk and Indofood Cbp Sukses in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indofood Cbp Sukses 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 Indofood Cbp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indofood Cbp Sukses has no effect on the direction of Telkom Indonesia i.e., Telkom Indonesia and Indofood Cbp go up and down completely randomly.

Pair Corralation between Telkom Indonesia and Indofood Cbp

Assuming the 90 days trading horizon Telkom Indonesia Tbk is expected to under-perform the Indofood Cbp. But the stock apears to be less risky and, when comparing its historical volatility, Telkom Indonesia Tbk is 1.06 times less risky than Indofood Cbp. The stock trades about -0.02 of its potential returns per unit of risk. The Indofood Cbp Sukses is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,003,179  in Indofood Cbp Sukses on September 1, 2024 and sell it today you would earn a total of  186,821  from holding Indofood Cbp Sukses or generate 18.62% return on investment over 90 days.

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

Telkom Indonesia Tbk  vs.  Indofood Cbp Sukses

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 forward-looking signals remain quite persistent which may send shares a bit higher in December 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Indofood Cbp Sukses

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Indofood Cbp Sukses are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Indofood Cbp is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Telkom Indonesia and Indofood Cbp

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

The idea behind Telkom Indonesia Tbk and Indofood Cbp Sukses 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 Transaction History module to view history of all your transactions and understand their impact on performance.