Correlation Between GMO Internet and PT Bumi

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

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

Diversification Opportunities for GMO Internet and PT Bumi

-0.64

Correlation Coefficient

GMO Internet  PT Bumi

Excellent diversification

The 3 months correlation between GMO and PJM is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding GMO Internet 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 GMO Internet 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 GMO Internet 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 GMO Internet i.e., GMO Internet and PT Bumi go up and down completely randomly.

Pair Corralation between GMO Internet and PT Bumi

Assuming the 90 days horizon GMO Internet is expected to generate 0.22 times more return on investment than PT Bumi. However, GMO Internet is 4.49 times less risky than PT Bumi. It trades about 0.12 of its potential returns per unit of risk. PT Bumi Resources is currently generating about -0.01 per unit of risk. If you would invest  1,673  in GMO Internet on December 17, 2024 and sell it today you would earn a total of  247.00  from holding GMO Internet or generate 14.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

GMO Internet  vs.  PT Bumi Resources

GMO Internet

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GMO Internet are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, GMO Internet reported solid returns over the last few months and may actually be approaching a breakup point.

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with GMO Internet and PT Bumi

The main advantage of trading using opposite GMO Internet and PT Bumi positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GMO Internet 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 GMO Internet 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 Global Correlations module to find global opportunities by holding instruments from different markets.