Correlation Between Grupo Aval and Telkom Indonesia

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

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

Diversification Opportunities for Grupo Aval and Telkom Indonesia

-0.26

Correlation Coefficient

Grupo Aval  Telkom Indonesia

Very good diversification

The 3 months correlation between Grupo and Telkom is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Grupo Aval 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 Grupo Aval 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 Grupo Aval 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 Grupo Aval i.e., Grupo Aval and Telkom Indonesia go up and down completely randomly.

Pair Corralation between Grupo Aval and Telkom Indonesia

Given the investment horizon of 90 days Grupo Aval is expected to generate 1.49 times more return on investment than Telkom Indonesia. However, Grupo Aval is 1.49 times more volatile than Telkom Indonesia Tbk. It trades about 0.01 of its potential returns per unit of risk. Telkom Indonesia Tbk is currently generating about -0.08 per unit of risk. If you would invest  242.00  in Grupo Aval on March 5, 2024 and sell it today you would lose (5.00) from holding Grupo Aval or give up 2.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.52%
Values	Daily Returns

Grupo Aval  vs.  Telkom Indonesia Tbk

Grupo Aval

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Grupo Aval has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Grupo Aval is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

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 uncertain performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in July 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Grupo Aval and Telkom Indonesia

The main advantage of trading using opposite Grupo Aval and Telkom Indonesia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Grupo Aval 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 Grupo Aval 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.