Correlation Between Bank Mandiri and Bumi Resources

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

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

Diversification Opportunities for Bank Mandiri and Bumi Resources

-0.66

Correlation Coefficient

Bank Mandiri  Bumi Resources

Excellent diversification

The 3 months correlation between Bank and Bumi is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Bank Mandiri Persero and Bumi Resources Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bumi Resources Tbk and Bank Mandiri 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 Bank Mandiri Persero are associated (or correlated) with Bumi Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bumi Resources Tbk has no effect on the direction of Bank Mandiri i.e., Bank Mandiri and Bumi Resources go up and down completely randomly.

Pair Corralation between Bank Mandiri and Bumi Resources

Assuming the 90 days trading horizon Bank Mandiri Persero is expected to under-perform the Bumi Resources. But the stock apears to be less risky and, when comparing its historical volatility, Bank Mandiri Persero is 2.92 times less risky than Bumi Resources. The stock trades about -0.09 of its potential returns per unit of risk. The Bumi Resources Tbk is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  8,900  in Bumi Resources Tbk on August 30, 2024 and sell it today you would earn a total of  5,200  from holding Bumi Resources Tbk or generate 58.43% return on investment over 90 days.

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

Bank Mandiri Persero  vs.  Bumi Resources Tbk

Bank Mandiri Persero

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank Mandiri Persero has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Bumi Resources Tbk

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bumi Resources Tbk are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Bumi Resources disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Mandiri and Bumi Resources

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

The idea behind Bank Mandiri Persero and Bumi Resources 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.