Correlation Between China Shenhua and PT Bumi
Can any of the company-specific risk be diversified away by investing in both China Shenhua and PT Bumi 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 China Shenhua and PT Bumi into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Shenhua Energy and PT Bumi Resources, you can compare the effects of market volatilities on China Shenhua and PT Bumi 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 China Shenhua with a short position of PT Bumi. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Shenhua and PT Bumi.
Diversification Opportunities for China Shenhua and PT Bumi
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between China and PJM is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding China Shenhua Energy and PT Bumi Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Bumi Resources and China Shenhua 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 China Shenhua Energy are associated (or correlated) with PT Bumi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Bumi Resources has no effect on the direction of China Shenhua i.e., China Shenhua and PT Bumi go up and down completely randomly.
Pair Corralation between China Shenhua and PT Bumi
Assuming the 90 days horizon China Shenhua is expected to generate 9.2 times less return on investment than PT Bumi. But when comparing it to its historical volatility, China Shenhua Energy is 2.09 times less risky than PT Bumi. It trades about 0.03 of its potential returns per unit of risk. PT Bumi Resources is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 0.50 in PT Bumi Resources on September 3, 2024 and sell it today you would earn a total of 0.30 from holding PT Bumi Resources or generate 60.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Shenhua Energy vs. PT Bumi Resources
Performance |
| Timeline |
| China Shenhua Energy |
| PT Bumi Resources |
China Shenhua and PT Bumi Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Shenhua and PT Bumi
The main advantage of trading using opposite China Shenhua and PT Bumi positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Shenhua position performs unexpectedly, PT Bumi 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 PT Bumi will offset losses from the drop in PT Bumi's long position.| China Shenhua vs. Bumrungrad Hospital Public | China Shenhua vs. PREMIER FOODS | China Shenhua vs. FEMALE HEALTH | China Shenhua vs. EHEALTH |
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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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