Correlation Between Telkom Indonesia and Bukit Asam

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

Diversification Opportunities for Telkom Indonesia and Bukit Asam

0.77

Correlation Coefficient

Telkom Indonesia  Bukit Asam

Poor diversification

The 3 months correlation between Telkom and Bukit is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Telkom Indonesia Tbk and Bukit Asam Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bukit Asam Tbk 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 Bukit Asam. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bukit Asam Tbk has no effect on the direction of Telkom Indonesia i.e., Telkom Indonesia and Bukit Asam go up and down completely randomly.

Pair Corralation between Telkom Indonesia and Bukit Asam

Assuming the 90 days trading horizon Telkom Indonesia Tbk is expected to under-perform the Bukit Asam. In addition to that, Telkom Indonesia is 1.12 times more volatile than Bukit Asam Tbk. It trades about -0.07 of its total potential returns per unit of risk. Bukit Asam Tbk is currently generating about -0.02 per unit of volatility. If you would invest  271,000  in Bukit Asam Tbk on October 5, 2024 and sell it today you would lose (3,000) from holding Bukit Asam Tbk or give up 1.11% of portfolio value over 90 days.

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

Telkom Indonesia Tbk  vs.  Bukit Asam Tbk

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 quite persistent forward-looking signals, Telkom Indonesia is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Bukit Asam Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bukit Asam Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward-looking signals 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.

Pair Trading with Telkom Indonesia and Bukit Asam

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

The idea behind Telkom Indonesia Tbk and Bukit Asam Tbk 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.