Correlation Between Banpu PCL and China Coal

Can any of the company-specific risk be diversified away by investing in both Banpu PCL 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 Banpu PCL and China Coal into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Banpu PCL and China Coal

-0.25

Correlation Coefficient

Banpu PCL  China Coal

Very good diversification

The 3 months correlation between Banpu and China is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Banpu PCL 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 Banpu PCL 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 Banpu PCL 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 Banpu PCL i.e., Banpu PCL and China Coal go up and down completely randomly.

Pair Corralation between Banpu PCL and China Coal

Assuming the 90 days trading horizon Banpu PCL is expected to under-perform the China Coal. In addition to that, Banpu PCL is 1.52 times more volatile than China Coal Energy. It trades about -0.05 of its total potential returns per unit of risk. China Coal Energy is currently generating about 0.06 per unit of volatility. If you would invest  100.00  in China Coal Energy on September 23, 2024 and sell it today you would earn a total of  9.00  from holding China Coal Energy or generate 9.0% return on investment over 90 days.

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

Banpu PCL  vs.  China Coal Energy

Banpu PCL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Banpu PCL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

China Coal Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Coal Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Coal may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Banpu PCL and China Coal

The main advantage of trading using opposite Banpu PCL and China Coal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Banpu PCL 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.

The idea behind Banpu PCL and China Coal 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.

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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..