Correlation Between China Shenhua and PT Bayan

Can any of the company-specific risk be diversified away by investing in both China Shenhua and PT Bayan 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 PT Bayan 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 PT Bayan Resources, you can compare the effects of market volatilities on China Shenhua and PT Bayan 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 PT Bayan. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Shenhua and PT Bayan.

Diversification Opportunities for China Shenhua and PT Bayan

0.25

Correlation Coefficient

China Shenhua  PT Bayan

Modest diversification

The 3 months correlation between China and BNB is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding China Shenhua Energy and PT Bayan Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Bayan Resources 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 PT Bayan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Bayan Resources has no effect on the direction of China Shenhua i.e., China Shenhua and PT Bayan go up and down completely randomly.

Pair Corralation between China Shenhua and PT Bayan

Assuming the 90 days horizon China Shenhua Energy is expected to under-perform the PT Bayan. But the stock apears to be less risky and, when comparing its historical volatility, China Shenhua Energy is 1.0 times less risky than PT Bayan. The stock trades about -0.03 of its potential returns per unit of risk. The PT Bayan Resources is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  104.00  in PT Bayan Resources on September 18, 2024 and sell it today you would earn a total of  16.00  from holding PT Bayan Resources or generate 15.38% return on investment over 90 days.

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

China Shenhua Energy  vs.  PT Bayan Resources

China Shenhua Energy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Shenhua Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Shenhua reported solid returns over the last few months and may actually be approaching a breakup point.

PT Bayan Resources

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PT Bayan Resources are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PT Bayan reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Shenhua and PT Bayan

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

The idea behind China Shenhua Energy and PT Bayan Resources 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.