Correlation Between Whitehaven Coal and New Hope

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

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

Diversification Opportunities for Whitehaven Coal and New Hope

0.77

Correlation Coefficient

Whitehaven Coal  New Hope

Poor diversification

The 3 months correlation between Whitehaven and New is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Whitehaven Coal Limited and New Hope in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Hope and Whitehaven Coal 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 Whitehaven Coal Limited are associated (or correlated) with New Hope. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Hope has no effect on the direction of Whitehaven Coal i.e., Whitehaven Coal and New Hope go up and down completely randomly.

Pair Corralation between Whitehaven Coal and New Hope

Assuming the 90 days horizon Whitehaven Coal Limited is expected to under-perform the New Hope. But the stock apears to be less risky and, when comparing its historical volatility, Whitehaven Coal Limited is 1.82 times less risky than New Hope. The stock trades about -0.16 of its potential returns per unit of risk. The New Hope is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  290.00  in New Hope on September 19, 2024 and sell it today you would earn a total of  11.00  from holding New Hope or generate 3.79% return on investment over 90 days.

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

Whitehaven Coal Limited  vs.  New Hope

Whitehaven Coal

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Whitehaven Coal Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Whitehaven Coal may actually be approaching a critical reversion point that can send shares even higher in January 2025.

New Hope

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in New Hope are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, New Hope reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Whitehaven Coal and New Hope

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

The idea behind Whitehaven Coal Limited and New Hope 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 Transaction History module to view history of all your transactions and understand their impact on performance.