Correlation Between PT Bayan and China Shenhua

Can any of the company-specific risk be diversified away by investing in both PT Bayan and China Shenhua 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 PT Bayan and China Shenhua into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between PT Bayan Resources and China Shenhua Energy, you can compare the effects of market volatilities on PT Bayan and China Shenhua 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 PT Bayan with a short position of China Shenhua. Check out your portfolio center. Please also check ongoing floating volatility patterns of PT Bayan and China Shenhua.

Diversification Opportunities for PT Bayan and China Shenhua

0.25

Correlation Coefficient

PT Bayan  China Shenhua

Modest diversification

The 3 months correlation between BNB and China is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding PT Bayan Resources and China Shenhua Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Shenhua Energy and PT Bayan 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 PT Bayan Resources are associated (or correlated) with China Shenhua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Shenhua Energy has no effect on the direction of PT Bayan i.e., PT Bayan and China Shenhua go up and down completely randomly.

Pair Corralation between PT Bayan and China Shenhua

Assuming the 90 days horizon PT Bayan Resources is expected to generate 0.7 times more return on investment than China Shenhua. However, PT Bayan Resources is 1.44 times less risky than China Shenhua. It trades about -0.09 of its potential returns per unit of risk. China Shenhua Energy is currently generating about -0.12 per unit of risk. If you would invest  115.00  in PT Bayan Resources on December 4, 2024 and sell it today you would lose (5.00) from holding PT Bayan Resources or give up 4.35% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

PT Bayan Resources  vs.  China Shenhua Energy

PT Bayan Resources

Risk-Adjusted Performance

Very Weak

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

China Shenhua Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Shenhua Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with PT Bayan and China Shenhua

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

The idea behind PT Bayan Resources and China Shenhua 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.