Correlation Between PT Bumi and Peabody Energy

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

Diversification Opportunities for PT Bumi and Peabody Energy

0.87

Correlation Coefficient

PT Bumi  Peabody Energy

Very poor diversification

The 3 months correlation between PJM and Peabody is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding PT Bumi Resources and Peabody Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Peabody Energy 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 Peabody Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Peabody Energy has no effect on the direction of PT Bumi i.e., PT Bumi and Peabody Energy go up and down completely randomly.

Pair Corralation between PT Bumi and Peabody Energy

Assuming the 90 days horizon PT Bumi Resources is expected to generate 3.33 times more return on investment than Peabody Energy. However, PT Bumi is 3.33 times more volatile than Peabody Energy. It trades about 0.0 of its potential returns per unit of risk. Peabody Energy is currently generating about -0.32 per unit of risk. If you would invest  0.75  in PT Bumi Resources on December 3, 2024 and sell it today you would lose (0.15) from holding PT Bumi Resources or give up 20.0% of portfolio value over 90 days.

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

PT Bumi Resources  vs.  Peabody Energy

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 nearly stable basic indicators, PT Bumi is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Peabody Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Peabody Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with PT Bumi and Peabody Energy

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

The idea behind PT Bumi Resources and Peabody Energy 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.