Correlation Between China Construction and PT Bumi

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

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

Diversification Opportunities for China Construction and PT Bumi

-0.55

Correlation Coefficient

China Construction  PT Bumi

Excellent diversification

The 3 months correlation between China and PJM is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and PT Bumi Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Bumi Resources and China Construction 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 China Construction Bank are associated (or correlated) with PT Bumi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Bumi Resources has no effect on the direction of China Construction i.e., China Construction and PT Bumi go up and down completely randomly.

Pair Corralation between China Construction and PT Bumi

Assuming the 90 days horizon China Construction Bank is expected to generate 1.6 times more return on investment than PT Bumi. However, China Construction is 1.6 times more volatile than PT Bumi Resources. It trades about 0.24 of its potential returns per unit of risk. PT Bumi Resources is currently generating about -0.14 per unit of risk. If you would invest  55.00  in China Construction Bank on October 10, 2024 and sell it today you would earn a total of  19.00  from holding China Construction Bank or generate 34.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.44%
Values	Daily Returns

China Construction Bank  vs.  PT Bumi Resources

China Construction Bank

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Construction Bank are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Construction reported solid returns over the last few months and may actually be approaching a breakup point.

PT Bumi Resources

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PT Bumi Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PT Bumi may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with China Construction and PT Bumi

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

The idea behind China Construction Bank and PT Bumi Resources 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.