Can any of the company-specific risk be diversified away by investing in both Bukit Asam 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 Bukit Asam and Bumi Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bukit Asam Tbk and Bumi Resources Minerals, you can compare the effects of market volatilities on Bukit Asam 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 Bukit Asam with a short position of Bumi Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bukit Asam and Bumi Resources.
Diversification Opportunities for Bukit Asam and Bumi Resources
The 3 months correlation between Bukit and Bumi is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Bukit Asam 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 Bukit Asam 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 Bukit Asam 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 Bukit Asam i.e., Bukit Asam and Bumi Resources go up and down completely randomly.
Pair Corralation between Bukit Asam and Bumi Resources
Assuming the 90 days trading horizon Bukit Asam Tbk is expected to generate 0.7 times more return on investment than Bumi Resources. However, Bukit Asam Tbk is 1.43 times less risky than Bumi Resources. It trades about 0.02 of its potential returns per unit of risk. Bumi Resources Minerals is currently generating about -0.02 per unit of risk. If you would invest 224,005 in Bukit Asam Tbk on March 6, 2024 and sell it today you would earn a total of 33,995 from holding Bukit Asam Tbk or generate 15.18% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Bukit Asam Tbk are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Bukit Asam may actually be approaching a critical reversion point that can send shares even higher in July 2024.
Over the last 90 days Bumi Resources Minerals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Bumi Resources is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.