Correlation Between Indo Tambangraya and Bayan Resources

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

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

Diversification Opportunities for Indo Tambangraya and Bayan Resources

0.51

Correlation Coefficient

Indo Tambangraya  Bayan Resources

Very weak diversification

The 3 months correlation between Indo and Bayan is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Indo Tambangraya Megah 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 Indo Tambangraya 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 Indo Tambangraya Megah 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 Indo Tambangraya i.e., Indo Tambangraya and Bayan Resources go up and down completely randomly.

Pair Corralation between Indo Tambangraya and Bayan Resources

Assuming the 90 days trading horizon Indo Tambangraya is expected to generate 8.16 times less return on investment than Bayan Resources. But when comparing it to its historical volatility, Indo Tambangraya Megah is 1.33 times less risky than Bayan Resources. It trades about 0.03 of its potential returns per unit of risk. Bayan Resources Tbk is currently generating about 0.19 of returns per unit of risk over similar time horizon. 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 Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Indo Tambangraya Megah  vs.  Bayan Resources Tbk

Indo Tambangraya Megah

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Indo Tambangraya Megah are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Indo Tambangraya 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 Indo Tambangraya and Bayan Resources

The main advantage of trading using opposite Indo Tambangraya and Bayan Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Indo Tambangraya 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 Indo Tambangraya Megah 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.

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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.