Correlation Between Amazon and PT Bumi

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

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

Diversification Opportunities for Amazon and PT Bumi

0.15

Correlation Coefficient

Amazon  PT Bumi

Average diversification

The 3 months correlation between Amazon and PJM is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc 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 Amazon 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 Amazon Inc 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 Amazon i.e., Amazon and PT Bumi go up and down completely randomly.

Pair Corralation between Amazon and PT Bumi

Given the investment horizon of 90 days Amazon Inc is expected to under-perform the PT Bumi. But the stock apears to be less risky and, when comparing its historical volatility, Amazon Inc is 6.08 times less risky than PT Bumi. The stock trades about -0.05 of its potential returns per unit of risk. The PT Bumi Resources is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  0.65  in PT Bumi Resources on December 2, 2024 and sell it today you would lose (0.05) from holding PT Bumi Resources or give up 7.69% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	93.02%
Values	Daily Returns

Amazon Inc  vs.  PT Bumi Resources

Amazon Inc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Amazon is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

PT Bumi Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days PT Bumi Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Amazon and PT Bumi

The main advantage of trading using opposite Amazon and PT Bumi positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon 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 Amazon Inc 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.