Correlation Between Benakat Petroleum and Bumi Resources

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

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

Diversification Opportunities for Benakat Petroleum and Bumi Resources

0.76

Correlation Coefficient

Benakat Petroleum  Bumi Resources

Poor diversification

The 3 months correlation between Benakat and Bumi is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Benakat Petroleum Energy and Bumi Resources Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bumi Resources Minerals and Benakat Petroleum 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 Benakat Petroleum Energy are associated (or correlated) with Bumi Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bumi Resources Minerals has no effect on the direction of Benakat Petroleum i.e., Benakat Petroleum and Bumi Resources go up and down completely randomly.

Pair Corralation between Benakat Petroleum and Bumi Resources

Assuming the 90 days trading horizon Benakat Petroleum is expected to generate 2.61 times less return on investment than Bumi Resources. But when comparing it to its historical volatility, Benakat Petroleum Energy is 1.11 times less risky than Bumi Resources. It trades about 0.11 of its potential returns per unit of risk. Bumi Resources Minerals is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  16,800  in Bumi Resources Minerals on September 4, 2024 and sell it today you would earn a total of  23,000  from holding Bumi Resources Minerals or generate 136.9% return on investment over 90 days.

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

Benakat Petroleum Energy  vs.  Bumi Resources Minerals

Benakat Petroleum Energy

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Benakat Petroleum Energy are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Benakat Petroleum disclosed solid returns over the last few months and may actually be approaching a breakup point.

Bumi Resources Minerals

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bumi Resources Minerals are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Bumi Resources disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Benakat Petroleum and Bumi Resources

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

The idea behind Benakat Petroleum Energy and Bumi Resources Minerals 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.

Check out your portfolio center.

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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.