Correlation Between PT Bumi and Cisco Systems

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

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

Diversification Opportunities for PT Bumi and Cisco Systems

0.4

Correlation Coefficient

PT Bumi  Cisco Systems

Very weak diversification

The 3 months correlation between PBMRF and Cisco is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding PT Bumi Resources and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems and PT Bumi 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 Bumi Resources are associated (or correlated) with Cisco Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cisco Systems has no effect on the direction of PT Bumi i.e., PT Bumi and Cisco Systems go up and down completely randomly.

Pair Corralation between PT Bumi and Cisco Systems

Assuming the 90 days horizon PT Bumi Resources is expected to generate 108.84 times more return on investment than Cisco Systems. However, PT Bumi is 108.84 times more volatile than Cisco Systems. It trades about 0.14 of its potential returns per unit of risk. Cisco Systems is currently generating about 0.07 per unit of risk. If you would invest  0.21  in PT Bumi Resources on December 29, 2024 and sell it today you would earn a total of  0.27  from holding PT Bumi Resources or generate 128.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.83%
Values	Daily Returns

PT Bumi Resources  vs.  Cisco Systems

PT Bumi Resources

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PT Bumi Resources are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PT Bumi reported solid returns over the last few months and may actually be approaching a breakup point.

Cisco Systems

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Cisco Systems is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with PT Bumi and Cisco Systems

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

The idea behind PT Bumi Resources and Cisco Systems 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.