Correlation Between Bumi Resources and Bank Rakyat

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

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

Diversification Opportunities for Bumi Resources and Bank Rakyat

-0.65

Correlation Coefficient

Bumi Resources  Bank Rakyat

Excellent diversification

The 3 months correlation between Bumi and Bank is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Bumi Resources Minerals and Bank Rakyat Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Rakyat Indonesia and Bumi Resources 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 Resources Minerals are associated (or correlated) with Bank Rakyat. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Rakyat Indonesia has no effect on the direction of Bumi Resources i.e., Bumi Resources and Bank Rakyat go up and down completely randomly.

Pair Corralation between Bumi Resources and Bank Rakyat

Assuming the 90 days trading horizon Bumi Resources Minerals is expected to generate 2.55 times more return on investment than Bank Rakyat. However, Bumi Resources is 2.55 times more volatile than Bank Rakyat Indonesia. It trades about 0.12 of its potential returns per unit of risk. Bank Rakyat Indonesia is currently generating about -0.26 per unit of risk. If you would invest  36,800  in Bumi Resources Minerals on September 1, 2024 and sell it today you would earn a total of  4,600  from holding Bumi Resources Minerals or generate 12.5% return on investment over 90 days.

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

Bumi Resources Minerals  vs.  Bank Rakyat Indonesia

Bumi Resources Minerals

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bumi Resources Minerals are ranked lower than 22 (%) 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.

Bank Rakyat Indonesia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank Rakyat Indonesia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in December 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Bumi Resources and Bank Rakyat

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

The idea behind Bumi Resources Minerals and Bank Rakyat Indonesia 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.