Correlation Between Indika Energy and Bayan Resources

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

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

Diversification Opportunities for Indika Energy and Bayan Resources

-0.52

Correlation Coefficient

Indika Energy  Bayan Resources

Excellent diversification

The 3 months correlation between Indika and Bayan is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Indika Energy Tbk and Bayan Resources Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bayan Resources Tbk and Indika Energy 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 Indika Energy Tbk are associated (or correlated) with Bayan Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bayan Resources Tbk has no effect on the direction of Indika Energy i.e., Indika Energy and Bayan Resources go up and down completely randomly.

Pair Corralation between Indika Energy and Bayan Resources

Assuming the 90 days trading horizon Indika Energy Tbk is expected to under-perform the Bayan Resources. In addition to that, Indika Energy is 2.0 times more volatile than Bayan Resources Tbk. It trades about 0.0 of its total potential returns per unit of risk. Bayan Resources Tbk is currently generating about 0.19 per unit of volatility. If you would invest  1,677,500  in Bayan Resources Tbk on September 4, 2024 and sell it today you would earn a total of  282,500  from holding Bayan Resources Tbk or generate 16.84% return on investment over 90 days.

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

Indika Energy Tbk  vs.  Bayan Resources Tbk

Indika Energy Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indika Energy Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Indika Energy is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Bayan Resources Tbk

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bayan Resources Tbk are ranked lower than 14 (%) 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.

Pair Trading with Indika Energy and Bayan Resources

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

The idea behind Indika Energy Tbk and Bayan Resources 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.

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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.