Correlation Between Bumi Resources and Timah Persero

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

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

Diversification Opportunities for Bumi Resources and Timah Persero

0.61

Correlation Coefficient

Bumi Resources  Timah Persero

Poor diversification

The 3 months correlation between Bumi and Timah is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Bumi Resources Tbk and Timah Persero Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Timah Persero Tbk and Bumi Resources 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 Bumi Resources Tbk are associated (or correlated) with Timah Persero. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Timah Persero Tbk has no effect on the direction of Bumi Resources i.e., Bumi Resources and Timah Persero go up and down completely randomly.

Pair Corralation between Bumi Resources and Timah Persero

Assuming the 90 days trading horizon Bumi Resources Tbk is expected to generate 1.37 times more return on investment than Timah Persero. However, Bumi Resources is 1.37 times more volatile than Timah Persero Tbk. It trades about 0.12 of its potential returns per unit of risk. Timah Persero Tbk is currently generating about 0.07 per unit of risk. If you would invest  10,500  in Bumi Resources Tbk on September 15, 2024 and sell it today you would earn a total of  3,700  from holding Bumi Resources Tbk or generate 35.24% return on investment over 90 days.

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

Bumi Resources Tbk  vs.  Timah Persero Tbk

Bumi Resources Tbk

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bumi Resources Tbk are ranked lower than 9 (%) 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.

Timah Persero Tbk

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Timah Persero Tbk are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Timah Persero disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bumi Resources and Timah Persero

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

The idea behind Bumi Resources Tbk and Timah Persero 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.