Correlation Between PT Bumi and PT Adaro

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

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

Diversification Opportunities for PT Bumi and PT Adaro

-0.11

Correlation Coefficient

PT Bumi  PT Adaro

Good diversification

The 3 months correlation between PJM and A64 is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding PT Bumi Resources and PT Adaro Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Adaro Energy and PT Bumi 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 PT Bumi Resources are associated (or correlated) with PT Adaro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Adaro Energy has no effect on the direction of PT Bumi i.e., PT Bumi and PT Adaro go up and down completely randomly.

Pair Corralation between PT Bumi and PT Adaro

Assuming the 90 days horizon PT Bumi Resources is expected to generate 0.81 times more return on investment than PT Adaro. However, PT Bumi Resources is 1.23 times less risky than PT Adaro. It trades about 0.11 of its potential returns per unit of risk. PT Adaro Energy is currently generating about -0.02 per unit of risk. If you would invest  0.55  in PT Bumi Resources on September 18, 2024 and sell it today you would earn a total of  0.20  from holding PT Bumi Resources or generate 36.36% return on investment over 90 days.

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

PT Bumi Resources  vs.  PT Adaro Energy

PT Bumi Resources

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PT Bumi Resources are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, PT Bumi reported solid returns over the last few months and may actually be approaching a breakup point.

PT Adaro Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PT Adaro Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with PT Bumi and PT Adaro

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

The idea behind PT Bumi Resources and PT Adaro Energy 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.