Correlation Between China Coal and TerraCom
Can any of the company-specific risk be diversified away by investing in both China Coal and TerraCom 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 Coal and TerraCom into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Coal Energy and TerraCom Limited, you can compare the effects of market volatilities on China Coal and TerraCom 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 Coal with a short position of TerraCom. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Coal and TerraCom.
Diversification Opportunities for China Coal and TerraCom
-0.63 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between China and TerraCom is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding China Coal Energy and TerraCom Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TerraCom Limited and China Coal 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 Coal Energy are associated (or correlated) with TerraCom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TerraCom Limited has no effect on the direction of China Coal i.e., China Coal and TerraCom go up and down completely randomly.
Pair Corralation between China Coal and TerraCom
Assuming the 90 days horizon China Coal Energy is expected to under-perform the TerraCom. But the pink sheet apears to be less risky and, when comparing its historical volatility, China Coal Energy is 1.09 times less risky than TerraCom. The pink sheet trades about -0.1 of its potential returns per unit of risk. The TerraCom Limited is currently generating about 0.87 of returns per unit of risk over similar time horizon. If you would invest 14.00 in TerraCom Limited on August 31, 2024 and sell it today you would earn a total of 2.00 from holding TerraCom Limited or generate 14.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 18.18% |
| Values | Daily Returns |
China Coal Energy vs. TerraCom Limited
Performance |
| Timeline |
| China Coal Energy |
| TerraCom Limited |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
OK
China Coal and TerraCom Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Coal and TerraCom
The main advantage of trading using opposite China Coal and TerraCom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Coal position performs unexpectedly, TerraCom 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 TerraCom will offset losses from the drop in TerraCom's long position.| China Coal vs. Indo Tambangraya Megah | China Coal vs. Adaro Energy Tbk | China Coal vs. Thungela Resources Limited | China Coal vs. China Shenhua Energy |
| TerraCom vs. Indo Tambangraya Megah | TerraCom vs. Adaro Energy Tbk | TerraCom vs. Thungela Resources Limited | TerraCom vs. China Shenhua 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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