Correlation Between Yanzhou Coal and PT Bumi

Can any of the company-specific risk be diversified away by investing in both Yanzhou Coal and PT Bumi 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 Yanzhou Coal and PT Bumi into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Yanzhou Coal Mining and PT Bumi Resources, you can compare the effects of market volatilities on Yanzhou Coal and PT Bumi 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 Yanzhou Coal with a short position of PT Bumi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yanzhou Coal and PT Bumi.

Diversification Opportunities for Yanzhou Coal and PT Bumi

0.05

Correlation Coefficient

Yanzhou Coal  PT Bumi

Significant diversification

The 3 months correlation between Yanzhou and PJM is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Yanzhou Coal Mining and PT Bumi Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Bumi Resources and Yanzhou Coal 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 Yanzhou Coal Mining are associated (or correlated) with PT Bumi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Bumi Resources has no effect on the direction of Yanzhou Coal i.e., Yanzhou Coal and PT Bumi go up and down completely randomly.

Pair Corralation between Yanzhou Coal and PT Bumi

Assuming the 90 days trading horizon Yanzhou Coal Mining is expected to generate 0.28 times more return on investment than PT Bumi. However, Yanzhou Coal Mining is 3.58 times less risky than PT Bumi. It trades about 0.0 of its potential returns per unit of risk. PT Bumi Resources is currently generating about -0.02 per unit of risk. If you would invest  105.00  in Yanzhou Coal Mining on December 28, 2024 and sell it today you would lose (2.00) from holding Yanzhou Coal Mining or give up 1.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Yanzhou Coal Mining  vs.  PT Bumi Resources

Yanzhou Coal Mining

Risk-Adjusted Performance

Very Weak

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

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 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.

Pair Trading with Yanzhou Coal and PT Bumi

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

The idea behind Yanzhou Coal Mining and PT Bumi Resources 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.