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

-0.13

Correlation Coefficient

Telkom Indonesia  SM Investments

Good diversification

The 3 months correlation between Telkom and SVTMF is -0.13. 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

Assuming the 90 days horizon Telkom Indonesia Tbk is expected to generate 1.56 times more return on investment than SM Investments. However, Telkom Indonesia is 1.56 times more volatile than SM Investments. It trades about 0.01 of its potential returns per unit of risk. SM Investments is currently generating about -0.24 per unit of risk. If you would invest  16.00  in Telkom Indonesia Tbk on October 22, 2024 and sell it today you would earn a total of  0.00  from holding Telkom Indonesia Tbk or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
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 fragile performance, the Stock's primary indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

SM Investments

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SM Investments are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, SM Investments may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.