Correlation Between PT Bumi and Seafarer Exploration

Can any of the company-specific risk be diversified away by investing in both PT Bumi and Seafarer Exploration 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 Seafarer Exploration 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 Seafarer Exploration, you can compare the effects of market volatilities on PT Bumi and Seafarer Exploration 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 Seafarer Exploration. Check out your portfolio center. Please also check ongoing floating volatility patterns of PT Bumi and Seafarer Exploration.

Diversification Opportunities for PT Bumi and Seafarer Exploration

0.81

Correlation Coefficient

PT Bumi  Seafarer Exploration

Very poor diversification

The 3 months correlation between PBMRF and Seafarer is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding PT Bumi Resources and Seafarer Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seafarer Exploration 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 Seafarer Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seafarer Exploration has no effect on the direction of PT Bumi i.e., PT Bumi and Seafarer Exploration go up and down completely randomly.

Pair Corralation between PT Bumi and Seafarer Exploration

Assuming the 90 days horizon PT Bumi Resources is expected to generate 6.15 times more return on investment than Seafarer Exploration. However, PT Bumi is 6.15 times more volatile than Seafarer Exploration. It trades about 0.06 of its potential returns per unit of risk. Seafarer Exploration is currently generating about 0.02 per unit of risk. If you would invest  0.80  in PT Bumi Resources on October 26, 2024 and sell it today you would lose (0.29) from holding PT Bumi Resources or give up 36.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.6%
Values	Daily Returns

PT Bumi Resources  vs.  Seafarer Exploration

PT Bumi Resources

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PT Bumi Resources are ranked lower than 4 (%) 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.

Seafarer Exploration

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Seafarer Exploration has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with PT Bumi and Seafarer Exploration

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

The idea behind PT Bumi Resources and Seafarer Exploration 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.