Correlation Between PT Bumi and Yancoal Australia

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

Diversification Opportunities for PT Bumi and Yancoal Australia

0.65

Correlation Coefficient

PT Bumi  Yancoal Australia

Poor diversification

The 3 months correlation between PJM and Yancoal is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding PT Bumi Resources and Yancoal Australia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yancoal Australia 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 Yancoal Australia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yancoal Australia has no effect on the direction of PT Bumi i.e., PT Bumi and Yancoal Australia go up and down completely randomly.

Pair Corralation between PT Bumi and Yancoal Australia

Assuming the 90 days horizon PT Bumi Resources is expected to under-perform the Yancoal Australia. But the stock apears to be less risky and, when comparing its historical volatility, PT Bumi Resources is 1.11 times less risky than Yancoal Australia. The stock trades about -0.2 of its potential returns per unit of risk. The Yancoal Australia is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  405.00  in Yancoal Australia on September 18, 2024 and sell it today you would lose (28.00) from holding Yancoal Australia or give up 6.91% of portfolio value over 90 days.

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

PT Bumi Resources  vs.  Yancoal Australia

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.

Yancoal Australia

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Yancoal Australia are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Yancoal Australia reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PT Bumi and Yancoal Australia

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

The idea behind PT Bumi Resources and Yancoal Australia 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.