Correlation Between Bumi Resources and Chitose Internasional

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

By analyzing existing cross correlation between Bumi Resources Tbk and Chitose Internasional Tbk, you can compare the effects of market volatilities on Bumi Resources and Chitose Internasional 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 Chitose Internasional. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bumi Resources and Chitose Internasional.

Diversification Opportunities for Bumi Resources and Chitose Internasional

-0.29

Correlation Coefficient

Bumi Resources  Chitose Internasional

Very good diversification

The 3 months correlation between Bumi and Chitose is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Bumi Resources Tbk and Chitose Internasional Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chitose Internasional Tbk 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 Tbk are associated (or correlated) with Chitose Internasional. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chitose Internasional Tbk has no effect on the direction of Bumi Resources i.e., Bumi Resources and Chitose Internasional go up and down completely randomly.

Pair Corralation between Bumi Resources and Chitose Internasional

Assuming the 90 days trading horizon Bumi Resources Tbk is expected to under-perform the Chitose Internasional. But the stock apears to be less risky and, when comparing its historical volatility, Bumi Resources Tbk is 2.4 times less risky than Chitose Internasional. The stock trades about -0.24 of its potential returns per unit of risk. The Chitose Internasional Tbk is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  17,000  in Chitose Internasional Tbk on September 27, 2024 and sell it today you would earn a total of  1,600  from holding Chitose Internasional Tbk or generate 9.41% return on investment over 90 days.

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

Bumi Resources Tbk  vs.  Chitose Internasional Tbk

Bumi Resources Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bumi Resources Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Bumi Resources is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Chitose Internasional Tbk

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Chitose Internasional Tbk are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Chitose Internasional may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Bumi Resources and Chitose Internasional

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

The idea behind Bumi Resources Tbk and Chitose Internasional 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.