Correlation Between Bukit Asam and Vale Indonesia

Can any of the company-specific risk be diversified away by investing in both Bukit Asam and Vale Indonesia 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 Bukit Asam and Vale Indonesia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bukit Asam Tbk and Vale Indonesia Tbk, you can compare the effects of market volatilities on Bukit Asam and Vale Indonesia 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 Bukit Asam with a short position of Vale Indonesia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bukit Asam and Vale Indonesia.

Diversification Opportunities for Bukit Asam and Vale Indonesia

0.43

Correlation Coefficient

Bukit Asam  Vale Indonesia

Very weak diversification

The 3 months correlation between Bukit and Vale is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Bukit Asam Tbk and Vale Indonesia Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale Indonesia Tbk and Bukit Asam 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 Bukit Asam Tbk are associated (or correlated) with Vale Indonesia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale Indonesia Tbk has no effect on the direction of Bukit Asam i.e., Bukit Asam and Vale Indonesia go up and down completely randomly.

Pair Corralation between Bukit Asam and Vale Indonesia

Assuming the 90 days trading horizon Bukit Asam Tbk is expected to generate 0.51 times more return on investment than Vale Indonesia. However, Bukit Asam Tbk is 1.97 times less risky than Vale Indonesia. It trades about -0.03 of its potential returns per unit of risk. Vale Indonesia Tbk is currently generating about -0.12 per unit of risk. If you would invest  270,000  in Bukit Asam Tbk on November 29, 2024 and sell it today you would lose (9,000) from holding Bukit Asam Tbk or give up 3.33% of portfolio value over 90 days.

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

Bukit Asam Tbk  vs.  Vale Indonesia Tbk

Bukit Asam Tbk

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bukit Asam Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Bukit Asam is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Vale Indonesia Tbk

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vale Indonesia Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in March 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Bukit Asam and Vale Indonesia

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

The idea behind Bukit Asam Tbk and Vale Indonesia Tbk 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.