Correlation Between Unilever Indonesia and Bumi Resources

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

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

Diversification Opportunities for Unilever Indonesia and Bumi Resources

-0.39

Correlation Coefficient

Unilever Indonesia  Bumi Resources

Very good diversification

The 3 months correlation between Unilever and Bumi is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Unilever Indonesia 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 Unilever Indonesia 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 Unilever Indonesia 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 Unilever Indonesia i.e., Unilever Indonesia and Bumi Resources go up and down completely randomly.

Pair Corralation between Unilever Indonesia and Bumi Resources

Assuming the 90 days trading horizon Unilever Indonesia Tbk is expected to generate 1.59 times more return on investment than Bumi Resources. However, Unilever Indonesia is 1.59 times more volatile than Bumi Resources Minerals. It trades about 0.45 of its potential returns per unit of risk. Bumi Resources Minerals is currently generating about -0.08 per unit of risk. If you would invest  233,000  in Unilever Indonesia Tbk on February 23, 2024 and sell it today you would earn a total of  75,000  from holding Unilever Indonesia Tbk or generate 32.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Unilever Indonesia Tbk  vs.  Bumi Resources Minerals

Unilever Indonesia Tbk

Risk-Adjusted Performance

8 of 100

OK

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

Bumi Resources Minerals

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bumi Resources Minerals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Bumi Resources may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Unilever Indonesia and Bumi Resources

The main advantage of trading using opposite Unilever Indonesia and Bumi Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Unilever Indonesia 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 Unilever Indonesia 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.