Correlation Between Timah Persero and Bumi Resources

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

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

Diversification Opportunities for Timah Persero and Bumi Resources

0.76

Correlation Coefficient

Timah Persero  Bumi Resources

Poor diversification

The 3 months correlation between Timah and Bumi is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Timah Persero Tbk and Bumi Resources Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bumi Resources Minerals and Timah Persero 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 Timah Persero Tbk are associated (or correlated) with Bumi Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bumi Resources Minerals has no effect on the direction of Timah Persero i.e., Timah Persero and Bumi Resources go up and down completely randomly.

Pair Corralation between Timah Persero and Bumi Resources

Assuming the 90 days trading horizon Timah Persero Tbk is expected to under-perform the Bumi Resources. But the stock apears to be less risky and, when comparing its historical volatility, Timah Persero Tbk is 1.52 times less risky than Bumi Resources. The stock trades about -0.24 of its potential returns per unit of risk. The Bumi Resources Minerals is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  38,200  in Bumi Resources Minerals on September 5, 2024 and sell it today you would earn a total of  1,800  from holding Bumi Resources Minerals or generate 4.71% return on investment over 90 days.

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

Timah Persero Tbk  vs.  Bumi Resources Minerals

Timah Persero Tbk

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Timah Persero Tbk are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Timah Persero may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Bumi Resources Minerals

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bumi Resources Minerals are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Bumi Resources disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Timah Persero and Bumi Resources

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

The idea behind Timah Persero Tbk and Bumi Resources Minerals 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.