Correlation Between Perusahaan Gas and Bumi Resources

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

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

Diversification Opportunities for Perusahaan Gas and Bumi Resources

-0.5

Correlation Coefficient

Perusahaan Gas  Bumi Resources

Very good diversification

The 3 months correlation between Perusahaan and Bumi is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Perusahaan Gas Negara 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 Perusahaan Gas 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 Perusahaan Gas Negara 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 Perusahaan Gas i.e., Perusahaan Gas and Bumi Resources go up and down completely randomly.

Pair Corralation between Perusahaan Gas and Bumi Resources

Assuming the 90 days trading horizon Perusahaan Gas Negara is expected to generate 0.53 times more return on investment than Bumi Resources. However, Perusahaan Gas Negara is 1.89 times less risky than Bumi Resources. It trades about 0.19 of its potential returns per unit of risk. Bumi Resources Tbk is currently generating about -0.18 per unit of risk. If you would invest  157,500  in Perusahaan Gas Negara on October 15, 2024 and sell it today you would earn a total of  12,500  from holding Perusahaan Gas Negara or generate 7.94% return on investment over 90 days.

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

Perusahaan Gas Negara  vs.  Bumi Resources Tbk

Perusahaan Gas Negara

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Perusahaan Gas Negara are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Perusahaan Gas disclosed solid returns over the last few months and may actually be approaching a breakup point.

Bumi Resources Tbk

Risk-Adjusted Performance

0 of 100

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 latest conflicting performance, the Stock's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Perusahaan Gas and Bumi Resources

The main advantage of trading using opposite Perusahaan Gas and Bumi Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Perusahaan Gas 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 Perusahaan Gas Negara 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.