Correlation Between PT Bumi and China Shenhua
Can any of the company-specific risk be diversified away by investing in both PT Bumi and China Shenhua 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 PT Bumi and China Shenhua into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PT Bumi Resources and China Shenhua Energy, you can compare the effects of market volatilities on PT Bumi and China Shenhua 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 PT Bumi with a short position of China Shenhua. Check out your portfolio center. Please also check ongoing floating volatility patterns of PT Bumi and China Shenhua.
Diversification Opportunities for PT Bumi and China Shenhua
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between PJM and China is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding PT Bumi Resources and China Shenhua Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Shenhua Energy and PT Bumi 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 PT Bumi Resources are associated (or correlated) with China Shenhua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Shenhua Energy has no effect on the direction of PT Bumi i.e., PT Bumi and China Shenhua go up and down completely randomly.
Pair Corralation between PT Bumi and China Shenhua
Assuming the 90 days horizon PT Bumi Resources is expected to generate 2.46 times more return on investment than China Shenhua. However, PT Bumi is 2.46 times more volatile than China Shenhua Energy. It trades about 0.08 of its potential returns per unit of risk. China Shenhua Energy is currently generating about -0.04 per unit of risk. If you would invest 0.75 in PT Bumi Resources on September 4, 2024 and sell it today you would earn a total of 0.05 from holding PT Bumi Resources or generate 6.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
PT Bumi Resources vs. China Shenhua Energy
Performance |
| Timeline |
| PT Bumi Resources |
| China Shenhua Energy |
PT Bumi and China Shenhua Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PT Bumi and China Shenhua
The main advantage of trading using opposite PT Bumi and China Shenhua positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PT Bumi position performs unexpectedly, China Shenhua 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 China Shenhua will offset losses from the drop in China Shenhua's long position.| PT Bumi vs. STMicroelectronics NV | PT Bumi vs. BYD ELECTRONIC | PT Bumi vs. Richardson Electronics | PT Bumi vs. Gold Road Resources |
| China Shenhua vs. PT Bayan Resources | China Shenhua vs. Yanzhou Coal Mining | China Shenhua vs. Yanzhou Coal Mining | China Shenhua vs. PT Adaro Energy |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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