Correlation Between Telkom Indonesia and Lumentum Holdings

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

Diversification Opportunities for Telkom Indonesia and Lumentum Holdings

0.84

Correlation Coefficient

Telkom Indonesia  Lumentum Holdings

Very poor diversification

The 3 months correlation between Telkom and Lumentum is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Telkom Indonesia Tbk and Lumentum Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lumentum Holdings 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 Lumentum Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lumentum Holdings has no effect on the direction of Telkom Indonesia i.e., Telkom Indonesia and Lumentum Holdings go up and down completely randomly.

Pair Corralation between Telkom Indonesia and Lumentum Holdings

Considering the 90-day investment horizon Telkom Indonesia is expected to generate 2.15 times less return on investment than Lumentum Holdings. But when comparing it to its historical volatility, Telkom Indonesia Tbk is 3.36 times less risky than Lumentum Holdings. It trades about 0.31 of its potential returns per unit of risk. Lumentum Holdings is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  5,657  in Lumentum Holdings on June 29, 2024 and sell it today you would earn a total of  796.00  from holding Lumentum Holdings or generate 14.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Telkom Indonesia Tbk  vs.  Lumentum Holdings

Telkom Indonesia Tbk

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Telkom Indonesia Tbk are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Telkom Indonesia may actually be approaching a critical reversion point that can send shares even higher in October 2024.

Lumentum Holdings

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lumentum Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Lumentum Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telkom Indonesia and Lumentum Holdings

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

The idea behind Telkom Indonesia Tbk and Lumentum Holdings 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.