Correlation Between Vale Indonesia and Bukit Asam

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

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

Diversification Opportunities for Vale Indonesia and Bukit Asam

0.69

Correlation Coefficient

Vale Indonesia  Bukit Asam

Poor diversification

The 3 months correlation between Vale and Bukit is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Vale Indonesia Tbk and Bukit Asam Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bukit Asam Tbk and Vale Indonesia 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 Vale Indonesia Tbk are associated (or correlated) with Bukit Asam. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bukit Asam Tbk has no effect on the direction of Vale Indonesia i.e., Vale Indonesia and Bukit Asam go up and down completely randomly.

Pair Corralation between Vale Indonesia and Bukit Asam

Assuming the 90 days trading horizon Vale Indonesia Tbk is expected to under-perform the Bukit Asam. In addition to that, Vale Indonesia is 2.36 times more volatile than Bukit Asam Tbk. It trades about -0.19 of its total potential returns per unit of risk. Bukit Asam Tbk is currently generating about -0.09 per unit of volatility. If you would invest  275,000  in Bukit Asam Tbk on December 29, 2024 and sell it today you would lose (23,000) from holding Bukit Asam Tbk or give up 8.36% of portfolio value over 90 days.

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

Vale Indonesia Tbk  vs.  Bukit Asam Tbk

Vale Indonesia Tbk

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vale Indonesia 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 April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Bukit Asam Tbk

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bukit Asam Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Vale Indonesia and Bukit Asam

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

The idea behind Vale Indonesia Tbk and Bukit Asam Tbk 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.