Correlation Between Peabody Energy and X FAB

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

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

Diversification Opportunities for Peabody Energy and X FAB

-0.38

Correlation Coefficient

Peabody Energy  X FAB

Very good diversification

The 3 months correlation between Peabody and XFB is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Peabody Energy and X FAB Silicon Foundries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on X FAB Silicon and Peabody Energy 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 Peabody Energy are associated (or correlated) with X FAB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of X FAB Silicon has no effect on the direction of Peabody Energy i.e., Peabody Energy and X FAB go up and down completely randomly.

Pair Corralation between Peabody Energy and X FAB

Assuming the 90 days horizon Peabody Energy is expected to under-perform the X FAB. But the stock apears to be less risky and, when comparing its historical volatility, Peabody Energy is 1.24 times less risky than X FAB. The stock trades about -0.02 of its potential returns per unit of risk. The X FAB Silicon Foundries is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  461.00  in X FAB Silicon Foundries on September 24, 2024 and sell it today you would earn a total of  15.00  from holding X FAB Silicon Foundries or generate 3.25% return on investment over 90 days.

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

Peabody Energy  vs.  X FAB Silicon Foundries

Peabody Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Peabody Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Peabody Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

X FAB Silicon

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in X FAB Silicon Foundries are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, X FAB is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Peabody Energy and X FAB

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

The idea behind Peabody Energy and X FAB Silicon Foundries 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.