Correlation Between PT Bumi and Industrial

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

Diversification Opportunities for PT Bumi and Industrial

-0.79

Correlation Coefficient

PT Bumi  Industrial

Pay attention - limited upside

The 3 months correlation between PJM and Industrial is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding PT Bumi Resources and Industrial and Commercial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial and Commercial 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 Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial and Commercial has no effect on the direction of PT Bumi i.e., PT Bumi and Industrial go up and down completely randomly.

Pair Corralation between PT Bumi and Industrial

Assuming the 90 days horizon PT Bumi is expected to generate 2.81 times less return on investment than Industrial. But when comparing it to its historical volatility, PT Bumi Resources is 1.26 times less risky than Industrial. It trades about 0.11 of its potential returns per unit of risk. Industrial and Commercial is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  47.00  in Industrial and Commercial on October 25, 2024 and sell it today you would earn a total of  14.00  from holding Industrial and Commercial or generate 29.79% return on investment over 90 days.

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

PT Bumi Resources  vs.  Industrial and Commercial

PT Bumi Resources

Risk-Adjusted Performance

0 of 100

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.

Industrial and Commercial

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Industrial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PT Bumi and Industrial

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

The idea behind PT Bumi Resources and Industrial and Commercial 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..