Correlation Between Automatic Data and PT Bumi

Can any of the company-specific risk be diversified away by investing in both Automatic Data and PT Bumi 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 Automatic Data and PT Bumi into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Automatic Data Processing and PT Bumi Resources, you can compare the effects of market volatilities on Automatic Data and PT Bumi 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 Automatic Data with a short position of PT Bumi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Automatic Data and PT Bumi.

Diversification Opportunities for Automatic Data and PT Bumi

0.75

Correlation Coefficient

Automatic Data  PT Bumi

Poor diversification

The 3 months correlation between Automatic and PJM is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and PT Bumi Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Bumi Resources and Automatic Data 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 Automatic Data Processing are associated (or correlated) with PT Bumi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Bumi Resources has no effect on the direction of Automatic Data i.e., Automatic Data and PT Bumi go up and down completely randomly.

Pair Corralation between Automatic Data and PT Bumi

Assuming the 90 days horizon Automatic Data Processing is expected to generate 0.14 times more return on investment than PT Bumi. However, Automatic Data Processing is 6.9 times less risky than PT Bumi. It trades about -0.01 of its potential returns per unit of risk. PT Bumi Resources is currently generating about -0.03 per unit of risk. If you would invest  28,940  in Automatic Data Processing on September 12, 2024 and sell it today you would lose (90.00) from holding Automatic Data Processing or give up 0.31% of portfolio value over 90 days.

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

Automatic Data Processing  vs.  PT Bumi Resources

Automatic Data Processing

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Automatic Data reported solid returns over the last few months and may actually be approaching a breakup point.

PT Bumi Resources

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PT Bumi Resources are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PT Bumi reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Automatic Data and PT Bumi

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

The idea behind Automatic Data Processing and PT Bumi Resources 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.