Correlation Between PT Indofood and Bank Bumi

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

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

Diversification Opportunities for PT Indofood and Bank Bumi

-0.45

Correlation Coefficient

PT Indofood  Bank Bumi

Very good diversification

The 3 months correlation between INDF and Bank is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding PT Indofood Sukses and Bank Bumi Arta in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Bumi Arta and PT Indofood 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 PT Indofood Sukses are associated (or correlated) with Bank Bumi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Bumi Arta has no effect on the direction of PT Indofood i.e., PT Indofood and Bank Bumi go up and down completely randomly.

Pair Corralation between PT Indofood and Bank Bumi

Assuming the 90 days trading horizon PT Indofood Sukses is expected to generate 0.66 times more return on investment than Bank Bumi. However, PT Indofood Sukses is 1.51 times less risky than Bank Bumi. It trades about 0.12 of its potential returns per unit of risk. Bank Bumi Arta is currently generating about -0.09 per unit of risk. If you would invest  677,500  in PT Indofood Sukses on September 3, 2024 and sell it today you would earn a total of  77,500  from holding PT Indofood Sukses or generate 11.44% return on investment over 90 days.

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

PT Indofood Sukses  vs.  Bank Bumi Arta

PT Indofood Sukses

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PT Indofood Sukses are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, PT Indofood may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Bank Bumi Arta

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank Bumi Arta 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 January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with PT Indofood and Bank Bumi

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

The idea behind PT Indofood Sukses and Bank Bumi Arta 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.

Check out your portfolio center.

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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.