Correlation Between Bayan Resources and Garuda Indonesia

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

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

Diversification Opportunities for Bayan Resources and Garuda Indonesia

-0.66

Correlation Coefficient

Bayan Resources  Garuda Indonesia

Excellent diversification

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

Pair Corralation between Bayan Resources and Garuda Indonesia

Assuming the 90 days trading horizon Bayan Resources Tbk is expected to generate 0.51 times more return on investment than Garuda Indonesia. However, Bayan Resources Tbk is 1.96 times less risky than Garuda Indonesia. It trades about 0.42 of its potential returns per unit of risk. Garuda Indonesia Persero is currently generating about 0.01 per unit of risk. If you would invest  1,720,000  in Bayan Resources Tbk on September 1, 2024 and sell it today you would earn a total of  237,500  from holding Bayan Resources Tbk or generate 13.81% return on investment over 90 days.

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

Bayan Resources Tbk  vs.  Garuda Indonesia Persero

Bayan Resources Tbk

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bayan Resources Tbk are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Bayan Resources disclosed solid returns over the last few months and may actually be approaching a breakup point.

Garuda Indonesia Persero

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Bayan Resources and Garuda Indonesia

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

The idea behind Bayan Resources Tbk and Garuda Indonesia Persero 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.