Correlation Between Telkom Indonesia and SAP SE

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

Diversification Opportunities for Telkom Indonesia and SAP SE

-0.62

Correlation Coefficient

Telkom Indonesia  SAP SE

Excellent diversification

The 3 months correlation between Telkom and SAP is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Telkom Indonesia Tbk and SAP SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAP SE 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 SAP SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SAP SE has no effect on the direction of Telkom Indonesia i.e., Telkom Indonesia and SAP SE go up and down completely randomly.

Pair Corralation between Telkom Indonesia and SAP SE

Assuming the 90 days trading horizon Telkom Indonesia Tbk is expected to under-perform the SAP SE. In addition to that, Telkom Indonesia is 2.94 times more volatile than SAP SE. It trades about -0.01 of its total potential returns per unit of risk. SAP SE is currently generating about 0.11 per unit of volatility. If you would invest  19,800  in SAP SE on September 3, 2024 and sell it today you would earn a total of  2,400  from holding SAP SE or generate 12.12% 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.  SAP SE

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. In spite of rather sound technical and fundamental indicators, Telkom Indonesia is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

SAP SE

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, SAP SE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Telkom Indonesia and SAP SE

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

The idea behind Telkom Indonesia Tbk and SAP SE 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.