Correlation Between HK Electric and PT Bumi

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

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

Diversification Opportunities for HK Electric and PT Bumi

0.31

Correlation Coefficient

HK Electric  PT Bumi

Weak diversification

The 3 months correlation between HKT and PJM is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding HK Electric Investments 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 HK Electric 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 HK Electric Investments 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 HK Electric i.e., HK Electric and PT Bumi go up and down completely randomly.

Pair Corralation between HK Electric and PT Bumi

Assuming the 90 days trading horizon HK Electric Investments is expected to under-perform the PT Bumi. But the stock apears to be less risky and, when comparing its historical volatility, HK Electric Investments is 13.62 times less risky than PT Bumi. The stock trades about -0.07 of its potential returns per unit of risk. The PT Bumi Resources is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  0.60  in PT Bumi Resources on December 27, 2024 and sell it today you would lose (0.15) from holding PT Bumi Resources or give up 25.0% of portfolio value over 90 days.

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

HK Electric Investments  vs.  PT Bumi Resources

HK Electric Investments

Risk-Adjusted Performance

Very Weak

Over the last 90 days HK Electric Investments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, HK Electric is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

PT Bumi Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days PT Bumi Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, PT Bumi is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with HK Electric and PT Bumi

The main advantage of trading using opposite HK Electric and PT Bumi positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HK Electric 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 HK Electric Investments 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.