Correlation Between New Hope and China Coal
Can any of the company-specific risk be diversified away by investing in both New Hope and China Coal 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 New Hope and China Coal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New Hope and China Coal Energy, you can compare the effects of market volatilities on New Hope and China Coal 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 New Hope with a short position of China Coal. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Hope and China Coal.
Diversification Opportunities for New Hope and China Coal
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between New and China is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding New Hope and China Coal Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Coal Energy and New Hope 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 New Hope are associated (or correlated) with China Coal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Coal Energy has no effect on the direction of New Hope i.e., New Hope and China Coal go up and down completely randomly.
Pair Corralation between New Hope and China Coal
Assuming the 90 days horizon New Hope is expected to generate 13.74 times less return on investment than China Coal. But when comparing it to its historical volatility, New Hope is 1.53 times less risky than China Coal. It trades about 0.01 of its potential returns per unit of risk. China Coal Energy is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 1,457 in China Coal Energy on November 27, 2024 and sell it today you would earn a total of 583.00 from holding China Coal Energy or generate 40.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 47.27% |
| Values | Daily Returns |
New Hope vs. China Coal Energy
Performance |
| Timeline |
| New Hope |
| China Coal Energy |
New Hope and China Coal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New Hope and China Coal
The main advantage of trading using opposite New Hope and China Coal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Hope position performs unexpectedly, China Coal 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 Coal will offset losses from the drop in China Coal's long position.| New Hope vs. Adaro Energy Tbk | New Hope vs. Geo Energy Resources | New Hope vs. Bukit Asam Tbk | New Hope vs. Yancoal Australia |
| China Coal vs. The Coca Cola | China Coal vs. Pearson PLC ADR | China Coal vs. Elite Education Group | China Coal vs. Keurig Dr Pepper |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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