Correlation Between PT Adaro and Peabody Energy

Can any of the company-specific risk be diversified away by investing in both PT Adaro and Peabody 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 PT Adaro and Peabody Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between PT Adaro Energy and Peabody Energy, you can compare the effects of market volatilities on PT Adaro and Peabody 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 PT Adaro with a short position of Peabody Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of PT Adaro and Peabody Energy.

Diversification Opportunities for PT Adaro and Peabody Energy

0.45

Correlation Coefficient

PT Adaro  Peabody Energy

Very weak diversification

The 3 months correlation between A64 and Peabody is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding PT Adaro Energy and Peabody Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Peabody Energy and PT Adaro 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 Adaro Energy are associated (or correlated) with Peabody Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Peabody Energy has no effect on the direction of PT Adaro i.e., PT Adaro and Peabody Energy go up and down completely randomly.

Pair Corralation between PT Adaro and Peabody Energy

Assuming the 90 days horizon PT Adaro Energy is expected to under-perform the Peabody Energy. In addition to that, PT Adaro is 3.0 times more volatile than Peabody Energy. It trades about -0.02 of its total potential returns per unit of risk. Peabody Energy is currently generating about 0.03 per unit of volatility. If you would invest  2,054  in Peabody Energy on September 18, 2024 and sell it today you would earn a total of  74.00  from holding Peabody Energy or generate 3.6% return on investment over 90 days.

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

PT Adaro Energy  vs.  Peabody Energy

PT Adaro Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PT Adaro Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Peabody Energy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Peabody Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Peabody Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with PT Adaro and Peabody Energy

The main advantage of trading using opposite PT Adaro and Peabody Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PT Adaro position performs unexpectedly, Peabody 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 Peabody Energy will offset losses from the drop in Peabody Energy's long position.

The idea behind PT Adaro Energy and Peabody Energy 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.

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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.