Correlation Between Bayan Resources and Vale Indonesia

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

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

Diversification Opportunities for Bayan Resources and Vale Indonesia

-0.55

Correlation Coefficient

Bayan Resources  Vale Indonesia

Excellent diversification

The 3 months correlation between Bayan and Vale is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Bayan Resources Tbk and Vale Indonesia Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale Indonesia Tbk and Bayan Resources 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 Bayan Resources Tbk are associated (or correlated) with Vale Indonesia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale Indonesia Tbk has no effect on the direction of Bayan Resources i.e., Bayan Resources and Vale Indonesia go up and down completely randomly.

Pair Corralation between Bayan Resources and Vale Indonesia

Assuming the 90 days trading horizon Bayan Resources Tbk is expected to under-perform the Vale Indonesia. But the stock apears to be less risky and, when comparing its historical volatility, Bayan Resources Tbk is 2.54 times less risky than Vale Indonesia. The stock trades about -0.09 of its potential returns per unit of risk. The Vale Indonesia Tbk is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  406,000  in Vale Indonesia Tbk on January 29, 2024 and sell it today you would earn a total of  4,000  from holding Vale Indonesia Tbk or generate 0.99% return on investment over 90 days.

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

Bayan Resources Tbk  vs.  Vale Indonesia Tbk

Bayan Resources Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bayan Resources Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Bayan Resources is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Vale Indonesia Tbk

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vale Indonesia Tbk are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Vale Indonesia may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Bayan Resources and Vale Indonesia

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

The idea behind Bayan Resources Tbk and Vale Indonesia 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.