Correlation Between Peabody Energy and NACCO Industries

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

By analyzing existing cross correlation between Peabody Energy Corp and NACCO Industries, you can compare the effects of market volatilities on Peabody Energy and NACCO Industries 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 Peabody Energy with a short position of NACCO Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Peabody Energy and NACCO Industries.

Diversification Opportunities for Peabody Energy and NACCO Industries

0.75

Correlation Coefficient

Peabody Energy  NACCO Industries

Poor diversification

The 3 months correlation between Peabody and NACCO is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Peabody Energy Corp and NACCO Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NACCO Industries and Peabody 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 Peabody Energy Corp are associated (or correlated) with NACCO Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NACCO Industries has no effect on the direction of Peabody Energy i.e., Peabody Energy and NACCO Industries go up and down completely randomly.

Pair Corralation between Peabody Energy and NACCO Industries

Considering the 90-day investment horizon Peabody Energy Corp is expected to under-perform the NACCO Industries. In addition to that, Peabody Energy is 1.14 times more volatile than NACCO Industries. It trades about -0.01 of its total potential returns per unit of risk. NACCO Industries is currently generating about 0.11 per unit of volatility. If you would invest  2,981  in NACCO Industries on August 30, 2024 and sell it today you would earn a total of  221.00  from holding NACCO Industries or generate 7.41% return on investment over 90 days.

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

Peabody Energy Corp  vs.  NACCO Industries

Peabody Energy Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Peabody Energy Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Peabody Energy may actually be approaching a critical reversion point that can send shares even higher in December 2024.

NACCO Industries

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NACCO Industries are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, NACCO Industries exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Peabody Energy and NACCO Industries

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

The idea behind Peabody Energy Corp and NACCO Industries 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.