Correlation Between Bayan Resources and Kimia Farma

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

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

Diversification Opportunities for Bayan Resources and Kimia Farma

-0.73

Correlation Coefficient

Bayan Resources  Kimia Farma

Pay attention - limited upside

The 3 months correlation between Bayan and Kimia is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Bayan Resources Tbk and Kimia Farma Persero in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kimia Farma Persero and Bayan 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 Bayan Resources Tbk are associated (or correlated) with Kimia Farma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kimia Farma Persero has no effect on the direction of Bayan Resources i.e., Bayan Resources and Kimia Farma go up and down completely randomly.

Pair Corralation between Bayan Resources and Kimia Farma

Assuming the 90 days trading horizon Bayan Resources Tbk is expected to generate 0.67 times more return on investment than Kimia Farma. However, Bayan Resources Tbk is 1.5 times less risky than Kimia Farma. It trades about 0.24 of its potential returns per unit of risk. Kimia Farma Persero is currently generating about -0.11 per unit of risk. If you would invest  1,652,500  in Bayan Resources Tbk on September 16, 2024 and sell it today you would earn a total of  377,500  from holding Bayan Resources Tbk or generate 22.84% return on investment over 90 days.

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

Bayan Resources Tbk  vs.  Kimia Farma Persero

Bayan Resources Tbk

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bayan Resources Tbk are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Bayan Resources disclosed solid returns over the last few months and may actually be approaching a breakup point.

Kimia Farma Persero

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kimia Farma Persero 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 January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Bayan Resources and Kimia Farma

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

The idea behind Bayan Resources Tbk and Kimia Farma Persero 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.