Correlation Between IMPERIAL TOBACCO and PT Bumi

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

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

Diversification Opportunities for IMPERIAL TOBACCO and PT Bumi

0.62

Correlation Coefficient

IMPERIAL TOBACCO  PT Bumi

Poor diversification

The 3 months correlation between IMPERIAL and PJM is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding IMPERIAL TOBACCO 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 IMPERIAL TOBACCO 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 IMPERIAL TOBACCO 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 IMPERIAL TOBACCO i.e., IMPERIAL TOBACCO and PT Bumi go up and down completely randomly.

Pair Corralation between IMPERIAL TOBACCO and PT Bumi

Assuming the 90 days trading horizon IMPERIAL TOBACCO is expected to generate 3.36 times less return on investment than PT Bumi. But when comparing it to its historical volatility, IMPERIAL TOBACCO is 5.01 times less risky than PT Bumi. It trades about 0.22 of its potential returns per unit of risk. PT Bumi Resources is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  0.50  in PT Bumi Resources on September 5, 2024 and sell it today you would earn a total of  0.30  from holding PT Bumi Resources or generate 60.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

IMPERIAL TOBACCO   vs.  PT Bumi Resources

IMPERIAL TOBACCO

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in IMPERIAL TOBACCO are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental drivers, IMPERIAL TOBACCO unveiled solid returns over the last few months and may actually be approaching a breakup point.

PT Bumi Resources

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PT Bumi Resources are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, PT Bumi reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IMPERIAL TOBACCO and PT Bumi

The main advantage of trading using opposite IMPERIAL TOBACCO and PT Bumi positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IMPERIAL TOBACCO 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 IMPERIAL TOBACCO 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.