Correlation Between Bumi Benowo and Royalindo Investa

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

By analyzing existing cross correlation between Bumi Benowo Sukses and Royalindo Investa Wijaya, you can compare the effects of market volatilities on Bumi Benowo and Royalindo Investa 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 Bumi Benowo with a short position of Royalindo Investa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bumi Benowo and Royalindo Investa.

Diversification Opportunities for Bumi Benowo and Royalindo Investa

0.48

Correlation Coefficient

Bumi Benowo  Royalindo Investa

Very weak diversification

The 3 months correlation between Bumi and Royalindo is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Bumi Benowo Sukses and Royalindo Investa Wijaya in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royalindo Investa Wijaya and Bumi Benowo 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 Bumi Benowo Sukses are associated (or correlated) with Royalindo Investa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royalindo Investa Wijaya has no effect on the direction of Bumi Benowo i.e., Bumi Benowo and Royalindo Investa go up and down completely randomly.

Pair Corralation between Bumi Benowo and Royalindo Investa

Assuming the 90 days trading horizon Bumi Benowo Sukses is expected to generate 0.51 times more return on investment than Royalindo Investa. However, Bumi Benowo Sukses is 1.97 times less risky than Royalindo Investa. It trades about 0.23 of its potential returns per unit of risk. Royalindo Investa Wijaya is currently generating about 0.09 per unit of risk. If you would invest  14,800  in Bumi Benowo Sukses on December 30, 2024 and sell it today you would earn a total of  7,000  from holding Bumi Benowo Sukses or generate 47.3% return on investment over 90 days.

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

Bumi Benowo Sukses  vs.  Royalindo Investa Wijaya

Bumi Benowo Sukses

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bumi Benowo Sukses are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Bumi Benowo disclosed solid returns over the last few months and may actually be approaching a breakup point.

Royalindo Investa Wijaya

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royalindo Investa Wijaya are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Royalindo Investa disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bumi Benowo and Royalindo Investa

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

The idea behind Bumi Benowo Sukses and Royalindo Investa Wijaya 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.