Correlation Between Bukit Asam and Vale Indonesia

Can any of the company-specific risk be diversified away by investing in both Bukit Asam 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 Bukit Asam and Vale Indonesia 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 Vale Indonesia Tbk, you can compare the effects of market volatilities on Bukit Asam 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 Bukit Asam with a short position of Vale Indonesia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bukit Asam and Vale Indonesia.

Diversification Opportunities for Bukit Asam and Vale Indonesia

0.69

Correlation Coefficient

Bukit Asam  Vale Indonesia

Poor diversification

The 3 months correlation between Bukit and Vale is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Bukit Asam 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 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 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 Bukit Asam i.e., Bukit Asam and Vale Indonesia go up and down completely randomly.

Pair Corralation between Bukit Asam and Vale Indonesia

Assuming the 90 days trading horizon Bukit Asam Tbk is expected to generate 1.09 times more return on investment than Vale Indonesia. However, Bukit Asam is 1.09 times more volatile than Vale Indonesia Tbk. It trades about 0.03 of its potential returns per unit of risk. Vale Indonesia Tbk is currently generating about -0.05 per unit of risk. If you would invest  261,299  in Bukit Asam Tbk on February 15, 2024 and sell it today you would earn a total of  31,701  from holding Bukit Asam Tbk or generate 12.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.62%
Values	Daily Returns

Bukit Asam Tbk  vs.  Vale Indonesia Tbk

Bukit Asam Tbk

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bukit Asam Tbk are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Bukit Asam disclosed solid returns over the last few months and may actually be approaching a breakup point.

Vale Indonesia Tbk

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Bukit Asam and Vale Indonesia

The main advantage of trading using opposite Bukit Asam and Vale Indonesia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bukit Asam 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 Bukit Asam 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.

Check out your portfolio center.

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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.