Correlation Between Indosat Tbk and Bumi Resources

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

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

Diversification Opportunities for Indosat Tbk and Bumi Resources

0.92

Correlation Coefficient

Indosat Tbk  Bumi Resources

Almost no diversification

The 3 months correlation between Indosat and Bumi is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Indosat Tbk and Bumi Resources Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bumi Resources Tbk and Indosat Tbk 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 Indosat 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 Tbk has no effect on the direction of Indosat Tbk i.e., Indosat Tbk and Bumi Resources go up and down completely randomly.

Pair Corralation between Indosat Tbk and Bumi Resources

Assuming the 90 days trading horizon Indosat Tbk is expected to under-perform the Bumi Resources. But the stock apears to be less risky and, when comparing its historical volatility, Indosat Tbk is 1.05 times less risky than Bumi Resources. The stock trades about -0.22 of its potential returns per unit of risk. The Bumi Resources Tbk is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  11,800  in Bumi Resources Tbk on December 30, 2024 and sell it today you would lose (2,500) from holding Bumi Resources Tbk or give up 21.19% of portfolio value over 90 days.

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

Indosat Tbk  vs.  Bumi Resources Tbk

Indosat Tbk

Risk-Adjusted Performance

Very Weak

Over the last 90 days Indosat 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.

Bumi Resources Tbk

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bumi Resources 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.

Pair Trading with Indosat Tbk and Bumi Resources

The main advantage of trading using opposite Indosat Tbk and Bumi Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Indosat Tbk 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 Indosat Tbk and Bumi Resources 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.