Correlation Between PT Bumi and Hercules Capital

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

Diversification Opportunities for PT Bumi and Hercules Capital

0.61

Correlation Coefficient

PT Bumi  Hercules Capital

Poor diversification

The 3 months correlation between PJM and Hercules is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding PT Bumi Resources and Hercules Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hercules Capital 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 Hercules Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hercules Capital has no effect on the direction of PT Bumi i.e., PT Bumi and Hercules Capital go up and down completely randomly.

Pair Corralation between PT Bumi and Hercules Capital

Assuming the 90 days horizon PT Bumi Resources is expected to under-perform the Hercules Capital. In addition to that, PT Bumi is 2.45 times more volatile than Hercules Capital. It trades about -0.21 of its total potential returns per unit of risk. Hercules Capital is currently generating about 0.01 per unit of volatility. If you would invest  1,806  in Hercules Capital on September 23, 2024 and sell it today you would earn a total of  1.00  from holding Hercules Capital or generate 0.06% return on investment over 90 days.

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

PT Bumi Resources  vs.  Hercules Capital

PT Bumi Resources

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PT Bumi Resources are ranked lower than 3 (%) 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.

Hercules Capital

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hercules Capital are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Hercules Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with PT Bumi and Hercules Capital

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

The idea behind PT Bumi Resources and Hercules Capital 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.