Correlation Between Telefonica Brasil and Telkom Indonesia

Can any of the company-specific risk be diversified away by investing in both Telefonica Brasil and Telkom Indonesia 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 Telefonica Brasil and Telkom Indonesia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Telefonica Brasil SA and Telkom Indonesia Tbk, you can compare the effects of market volatilities on Telefonica Brasil and Telkom Indonesia 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 Telefonica Brasil with a short position of Telkom Indonesia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Telefonica Brasil and Telkom Indonesia.

Diversification Opportunities for Telefonica Brasil and Telkom Indonesia

-0.42

Correlation Coefficient

Telefonica Brasil  Telkom Indonesia

Very good diversification

The 3 months correlation between Telefonica and Telkom is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Telefonica Brasil SA and Telkom Indonesia Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telkom Indonesia Tbk and Telefonica Brasil 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 Telefonica Brasil SA are associated (or correlated) with Telkom Indonesia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telkom Indonesia Tbk has no effect on the direction of Telefonica Brasil i.e., Telefonica Brasil and Telkom Indonesia go up and down completely randomly.

Pair Corralation between Telefonica Brasil and Telkom Indonesia

Considering the 90-day investment horizon Telefonica Brasil SA is expected to under-perform the Telkom Indonesia. But the stock apears to be less risky and, when comparing its historical volatility, Telefonica Brasil SA is 2.91 times less risky than Telkom Indonesia. The stock trades about -0.18 of its potential returns per unit of risk. The Telkom Indonesia Tbk is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  18.00  in Telkom Indonesia Tbk on September 5, 2024 and sell it today you would earn a total of  1.00  from holding Telkom Indonesia Tbk or generate 5.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Telefonica Brasil SA  vs.  Telkom Indonesia Tbk

Telefonica Brasil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telefonica Brasil SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's forward indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Telkom Indonesia Tbk

Risk-Adjusted Performance

7 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Telkom Indonesia Tbk are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, Telkom Indonesia reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telefonica Brasil and Telkom Indonesia

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

The idea behind Telefonica Brasil SA and Telkom Indonesia 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.