Correlation Between PT Bumi and Yanzhou Coal

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

Diversification Opportunities for PT Bumi and Yanzhou Coal

0.75

Correlation Coefficient

PT Bumi  Yanzhou Coal

Poor diversification

The 3 months correlation between PJM and Yanzhou is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding PT Bumi Resources and Yanzhou Coal Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yanzhou Coal Mining 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 Yanzhou Coal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yanzhou Coal Mining has no effect on the direction of PT Bumi i.e., PT Bumi and Yanzhou Coal go up and down completely randomly.

Pair Corralation between PT Bumi and Yanzhou Coal

Assuming the 90 days horizon PT Bumi Resources is expected to generate 1.44 times more return on investment than Yanzhou Coal. However, PT Bumi is 1.44 times more volatile than Yanzhou Coal Mining. It trades about 0.15 of its potential returns per unit of risk. Yanzhou Coal Mining is currently generating about 0.09 per unit of risk. If you would invest  0.50  in PT Bumi Resources on September 5, 2024 and sell it today you would earn a total of  0.30  from holding PT Bumi Resources or generate 60.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

PT Bumi Resources  vs.  Yanzhou Coal Mining

PT Bumi Resources

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PT Bumi Resources are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, PT Bumi reported solid returns over the last few months and may actually be approaching a breakup point.

Yanzhou Coal Mining

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Yanzhou Coal Mining are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Yanzhou Coal reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PT Bumi and Yanzhou Coal

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

The idea behind PT Bumi Resources and Yanzhou Coal Mining 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.