Correlation Between Whitehaven Coal and Yanzhou Coal

Can any of the company-specific risk be diversified away by investing in both Whitehaven Coal and Yanzhou 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 Whitehaven Coal and Yanzhou Coal 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 Yanzhou Coal Mining, you can compare the effects of market volatilities on Whitehaven Coal and Yanzhou 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 Whitehaven Coal with a short position of Yanzhou Coal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Whitehaven Coal and Yanzhou Coal.

Diversification Opportunities for Whitehaven Coal and Yanzhou Coal

0.79

Correlation Coefficient

Whitehaven Coal  Yanzhou Coal

Poor diversification

The 3 months correlation between Whitehaven and Yanzhou is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Whitehaven Coal Limited and Yanzhou Coal Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yanzhou Coal Mining 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 Yanzhou Coal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yanzhou Coal Mining has no effect on the direction of Whitehaven Coal i.e., Whitehaven Coal and Yanzhou Coal go up and down completely randomly.

Pair Corralation between Whitehaven Coal and Yanzhou Coal

Assuming the 90 days horizon Whitehaven Coal is expected to generate 1.73 times less return on investment than Yanzhou Coal. But when comparing it to its historical volatility, Whitehaven Coal Limited is 1.77 times less risky than Yanzhou Coal. It trades about 0.06 of its potential returns per unit of risk. Yanzhou Coal Mining is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  992.00  in Yanzhou Coal Mining on September 19, 2024 and sell it today you would earn a total of  108.00  from holding Yanzhou Coal Mining or generate 10.89% 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.  Yanzhou Coal Mining

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 fragile basic indicators, Whitehaven Coal may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Yanzhou Coal Mining

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Yanzhou Coal Mining are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Yanzhou Coal reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Whitehaven Coal and Yanzhou Coal

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

The idea behind Whitehaven Coal Limited and Yanzhou Coal Mining 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.