Correlation Between PT Bumi and GuocoLand

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

Diversification Opportunities for PT Bumi and GuocoLand

0.55

Correlation Coefficient

PT Bumi  GuocoLand

Very weak diversification

The 3 months correlation between PJM and GuocoLand is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding PT Bumi Resources and GuocoLand Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GuocoLand Limited 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 GuocoLand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GuocoLand Limited has no effect on the direction of PT Bumi i.e., PT Bumi and GuocoLand go up and down completely randomly.

Pair Corralation between PT Bumi and GuocoLand

Assuming the 90 days horizon PT Bumi Resources is expected to under-perform the GuocoLand. In addition to that, PT Bumi is 33.43 times more volatile than GuocoLand Limited. It trades about -0.02 of its total potential returns per unit of risk. GuocoLand Limited is currently generating about 0.06 per unit of volatility. If you would invest  102.00  in GuocoLand Limited on December 29, 2024 and sell it today you would earn a total of  1.00  from holding GuocoLand Limited or generate 0.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

PT Bumi Resources  vs.  GuocoLand Limited

PT Bumi Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days PT Bumi Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

GuocoLand Limited

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in GuocoLand Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, GuocoLand is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with PT Bumi and GuocoLand

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

The idea behind PT Bumi Resources and GuocoLand Limited 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.