Correlation Between China Shenhua and Adaro Energy
Can any of the company-specific risk be diversified away by investing in both China Shenhua and Adaro Energy 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 Adaro Energy 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 Adaro Energy Tbk, you can compare the effects of market volatilities on China Shenhua and Adaro Energy 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 Adaro Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Shenhua and Adaro Energy.
Diversification Opportunities for China Shenhua and Adaro Energy
-0.28 | Correlation Coefficient |
Very good diversification
The 3 months correlation between China and Adaro is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding China Shenhua Energy and Adaro Energy Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adaro Energy Tbk 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 Adaro Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adaro Energy Tbk has no effect on the direction of China Shenhua i.e., China Shenhua and Adaro Energy go up and down completely randomly.
Pair Corralation between China Shenhua and Adaro Energy
Assuming the 90 days horizon China Shenhua Energy is expected to generate 0.38 times more return on investment than Adaro Energy. However, China Shenhua Energy is 2.64 times less risky than Adaro Energy. It trades about 0.21 of its potential returns per unit of risk. Adaro Energy Tbk is currently generating about -0.01 per unit of risk. If you would invest 420.00 in China Shenhua Energy on August 31, 2024 and sell it today you would earn a total of 35.00 from holding China Shenhua Energy or generate 8.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Shenhua Energy vs. Adaro Energy Tbk
Performance |
| Timeline |
| China Shenhua Energy |
| Adaro Energy Tbk |
China Shenhua and Adaro Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Shenhua and Adaro Energy
The main advantage of trading using opposite China Shenhua and Adaro Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Shenhua position performs unexpectedly, Adaro Energy 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 Adaro Energy will offset losses from the drop in Adaro Energy's long position.| China Shenhua vs. Bukit Asam Tbk | China Shenhua vs. Indo Tambangraya Megah | China Shenhua vs. Thungela Resources Limited |
| Adaro Energy vs. Thungela Resources Limited | Adaro Energy vs. Geo Energy Resources | Adaro Energy vs. Bukit Asam Tbk | Adaro Energy 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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