Correlation Between Gudang Garam and Bumi Resources

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

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

Diversification Opportunities for Gudang Garam and Bumi Resources

-0.87

Correlation Coefficient

Gudang Garam  Bumi Resources

Pay attention - limited upside

The 3 months correlation between Gudang and Bumi is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding Gudang Garam Tbk 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 Gudang Garam 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 Gudang Garam Tbk 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 Gudang Garam i.e., Gudang Garam and Bumi Resources go up and down completely randomly.

Pair Corralation between Gudang Garam and Bumi Resources

Assuming the 90 days trading horizon Gudang Garam Tbk is expected to under-perform the Bumi Resources. But the stock apears to be less risky and, when comparing its historical volatility, Gudang Garam Tbk is 4.78 times less risky than Bumi Resources. The stock trades about -0.3 of its potential returns per unit of risk. The Bumi Resources Minerals is currently generating about 0.12 of returns per unit of risk over similar time horizon. 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	Significant
Accuracy	95.45%
Values	Daily Returns

Gudang Garam Tbk  vs.  Bumi Resources Minerals

Gudang Garam Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gudang Garam Tbk 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.

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.

Pair Trading with Gudang Garam and Bumi Resources

The main advantage of trading using opposite Gudang Garam and Bumi Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gudang Garam 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 Gudang Garam Tbk 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.