Correlation Between Central Omega and Bumi Resources

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

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

Diversification Opportunities for Central Omega and Bumi Resources

0.91

Correlation Coefficient

Central Omega  Bumi Resources

Almost no diversification

The 3 months correlation between Central and Bumi is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Central Omega Resources and Bumi Resources Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bumi Resources Minerals and Central Omega 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 Central Omega Resources 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 Minerals has no effect on the direction of Central Omega i.e., Central Omega and Bumi Resources go up and down completely randomly.

Pair Corralation between Central Omega and Bumi Resources

Assuming the 90 days trading horizon Central Omega is expected to generate 1.29 times less return on investment than Bumi Resources. But when comparing it to its historical volatility, Central Omega Resources is 1.06 times less risky than Bumi Resources. It trades about 0.06 of its potential returns per unit of risk. Bumi Resources Minerals is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  17,200  in Bumi Resources Minerals on September 4, 2024 and sell it today you would earn a total of  22,600  from holding Bumi Resources Minerals or generate 131.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Central Omega Resources  vs.  Bumi Resources Minerals

Central Omega Resources

Risk-Adjusted Performance

14 of 100

Good

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

Bumi Resources Minerals

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bumi Resources Minerals are ranked lower than 20 (%) 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 Central Omega and Bumi Resources

The main advantage of trading using opposite Central Omega and Bumi Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Central Omega 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 Central Omega Resources and Bumi Resources Minerals 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.