Correlation Between Lumentum Holdings and Telkom Indonesia

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Can any of the company-specific risk be diversified away by investing in both Lumentum Holdings 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 Lumentum Holdings and Telkom Indonesia into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lumentum Holdings and Telkom Indonesia Tbk, you can compare the effects of market volatilities on Lumentum Holdings 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 Lumentum Holdings with a short position of Telkom Indonesia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lumentum Holdings and Telkom Indonesia.

Diversification Opportunities for Lumentum Holdings and Telkom Indonesia

-0.67
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Lumentum and Telkom is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Lumentum Holdings 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 Lumentum Holdings 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 Lumentum Holdings 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 Lumentum Holdings i.e., Lumentum Holdings and Telkom Indonesia go up and down completely randomly.

Pair Corralation between Lumentum Holdings and Telkom Indonesia

Given the investment horizon of 90 days Lumentum Holdings is expected to generate 2.4 times more return on investment than Telkom Indonesia. However, Lumentum Holdings is 2.4 times more volatile than Telkom Indonesia Tbk. It trades about 0.21 of its potential returns per unit of risk. Telkom Indonesia Tbk is currently generating about -0.2 per unit of risk. If you would invest  5,282  in Lumentum Holdings on August 17, 2024 and sell it today you would earn a total of  2,863  from holding Lumentum Holdings or generate 54.2% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy98.44%
ValuesDaily Returns

Lumentum Holdings  vs.  Telkom Indonesia Tbk

 Performance 
       Timeline  
Lumentum Holdings 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Lumentum Holdings are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Lumentum Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.
Telkom Indonesia Tbk 

Risk-Adjusted Performance

0 of 100

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

Lumentum Holdings and Telkom Indonesia Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Lumentum Holdings and Telkom Indonesia

The main advantage of trading using opposite Lumentum Holdings and Telkom Indonesia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lumentum Holdings 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 Lumentum Holdings 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.

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