Correlation Between Wilmar International and Bumitama Agri

Can any of the company-specific risk be diversified away by investing in both Wilmar International and Bumitama Agri 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 Wilmar International and Bumitama Agri into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Wilmar International Limited and Bumitama Agri, you can compare the effects of market volatilities on Wilmar International and Bumitama Agri 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 Wilmar International with a short position of Bumitama Agri. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wilmar International and Bumitama Agri.

Diversification Opportunities for Wilmar International and Bumitama Agri

-0.57

Correlation Coefficient

Wilmar International  Bumitama Agri

Excellent diversification

The 3 months correlation between Wilmar and Bumitama is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Wilmar International Limited and Bumitama Agri in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bumitama Agri and Wilmar International 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 Wilmar International Limited are associated (or correlated) with Bumitama Agri. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bumitama Agri has no effect on the direction of Wilmar International i.e., Wilmar International and Bumitama Agri go up and down completely randomly.

Pair Corralation between Wilmar International and Bumitama Agri

Assuming the 90 days trading horizon Wilmar International Limited is expected to generate 0.8 times more return on investment than Bumitama Agri. However, Wilmar International Limited is 1.25 times less risky than Bumitama Agri. It trades about 0.04 of its potential returns per unit of risk. Bumitama Agri is currently generating about 0.0 per unit of risk. If you would invest  215.00  in Wilmar International Limited on December 5, 2024 and sell it today you would earn a total of  8.00  from holding Wilmar International Limited or generate 3.72% return on investment over 90 days.

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

Wilmar International Limited  vs.  Bumitama Agri

Wilmar International

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wilmar International Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, Wilmar International is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Bumitama Agri

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bumitama Agri has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Bumitama Agri is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Wilmar International and Bumitama Agri

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

The idea behind Wilmar International Limited and Bumitama Agri 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.