Correlation Between Bisi International and Vale Indonesia

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

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

Diversification Opportunities for Bisi International and Vale Indonesia

0.6

Correlation Coefficient

Bisi International  Vale Indonesia

Poor diversification

The 3 months correlation between Bisi and Vale is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Bisi International 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 Bisi International 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 Bisi International 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 Bisi International i.e., Bisi International and Vale Indonesia go up and down completely randomly.

Pair Corralation between Bisi International and Vale Indonesia

Assuming the 90 days trading horizon Bisi International Tbk is expected to under-perform the Vale Indonesia. In addition to that, Bisi International is 1.45 times more volatile than Vale Indonesia Tbk. It trades about -0.26 of its total potential returns per unit of risk. Vale Indonesia Tbk is currently generating about -0.28 per unit of volatility. If you would invest  440,000  in Vale Indonesia Tbk on February 6, 2024 and sell it today you would lose (33,000) from holding Vale Indonesia Tbk or give up 7.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Bisi International Tbk  vs.  Vale Indonesia Tbk

Bisi International Tbk

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bisi International Tbk are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Bisi International disclosed solid returns over the last few months and may actually be approaching a breakup point.

Vale Indonesia Tbk

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vale Indonesia Tbk are ranked lower than 6 (%) 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 Bisi International and Vale Indonesia

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

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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.