Correlation Between PT Bumi and Bayer AG

Can any of the company-specific risk be diversified away by investing in both PT Bumi and Bayer AG 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 Bayer AG 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 Bayer AG NA, you can compare the effects of market volatilities on PT Bumi and Bayer AG 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 Bayer AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of PT Bumi and Bayer AG.

Diversification Opportunities for PT Bumi and Bayer AG

-0.63

Correlation Coefficient

PT Bumi  Bayer AG

Excellent diversification

The 3 months correlation between PJM and Bayer is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding PT Bumi Resources and Bayer AG NA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bayer AG NA 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 Bayer AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bayer AG NA has no effect on the direction of PT Bumi i.e., PT Bumi and Bayer AG go up and down completely randomly.

Pair Corralation between PT Bumi and Bayer AG

Assuming the 90 days horizon PT Bumi Resources is expected to under-perform the Bayer AG. In addition to that, PT Bumi is 1.42 times more volatile than Bayer AG NA. It trades about -0.11 of its total potential returns per unit of risk. Bayer AG NA is currently generating about -0.09 per unit of volatility. If you would invest  2,022  in Bayer AG NA on September 18, 2024 and sell it today you would lose (72.00) from holding Bayer AG NA or give up 3.56% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

PT Bumi Resources  vs.  Bayer AG NA

PT Bumi Resources

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PT Bumi Resources are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PT Bumi reported solid returns over the last few months and may actually be approaching a breakup point.

Bayer AG NA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bayer AG NA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with PT Bumi and Bayer AG

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

The idea behind PT Bumi Resources and Bayer AG NA 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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.