Correlation Between Adaro Energy and Consol Energy

Can any of the company-specific risk be diversified away by investing in both Adaro Energy and Consol Energy 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 Consol Energy 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 Consol Energy, you can compare the effects of market volatilities on Adaro Energy and Consol Energy 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 Consol Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adaro Energy and Consol Energy.

Diversification Opportunities for Adaro Energy and Consol Energy

-0.48

Correlation Coefficient

Adaro Energy  Consol Energy

Very good diversification

The 3 months correlation between Adaro and Consol is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Adaro Energy Tbk and Consol Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consol Energy 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 Consol Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consol Energy has no effect on the direction of Adaro Energy i.e., Adaro Energy and Consol Energy go up and down completely randomly.

Pair Corralation between Adaro Energy and Consol Energy

Assuming the 90 days horizon Adaro Energy Tbk is expected to generate 18.14 times more return on investment than Consol Energy. However, Adaro Energy is 18.14 times more volatile than Consol Energy. It trades about 0.27 of its potential returns per unit of risk. Consol Energy is currently generating about -0.33 per unit of risk. If you would invest  364.00  in Adaro Energy Tbk on October 16, 2024 and sell it today you would earn a total of  614.00  from holding Adaro Energy Tbk or generate 168.68% return on investment over 90 days.

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

Adaro Energy Tbk  vs.  Consol Energy

Adaro Energy Tbk

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Adaro Energy Tbk are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Adaro Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Consol Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Consol Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward indicators, Consol Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Adaro Energy and Consol Energy

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

The idea behind Adaro Energy Tbk and Consol 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.