Correlation Between Adaro Energy and Alliance Resource

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

By analyzing existing cross correlation between Adaro Energy Tbk and Alliance Resource Partners, you can compare the effects of market volatilities on Adaro Energy and Alliance Resource 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 Adaro Energy with a short position of Alliance Resource. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adaro Energy and Alliance Resource.

Diversification Opportunities for Adaro Energy and Alliance Resource

0.12

Correlation Coefficient

Adaro Energy  Alliance Resource

Average diversification

The 3 months correlation between Adaro and Alliance is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Adaro Energy Tbk and Alliance Resource Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliance Resource and Adaro 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 Adaro Energy Tbk are associated (or correlated) with Alliance Resource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliance Resource has no effect on the direction of Adaro Energy i.e., Adaro Energy and Alliance Resource go up and down completely randomly.

Pair Corralation between Adaro Energy and Alliance Resource

Assuming the 90 days horizon Adaro Energy Tbk is expected to under-perform the Alliance Resource. In addition to that, Adaro Energy is 2.56 times more volatile than Alliance Resource Partners. It trades about -0.14 of its total potential returns per unit of risk. Alliance Resource Partners is currently generating about 0.06 per unit of volatility. If you would invest  2,524  in Alliance Resource Partners on December 29, 2024 and sell it today you would earn a total of  142.00  from holding Alliance Resource Partners or generate 5.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Adaro Energy Tbk  vs.  Alliance Resource Partners

Adaro Energy Tbk

Risk-Adjusted Performance

Very Weak

Over the last 90 days Adaro Energy Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Alliance Resource

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Resource Partners are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain essential indicators, Alliance Resource may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Adaro Energy and Alliance Resource

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

The idea behind Adaro Energy Tbk and Alliance Resource Partners 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.