Correlation Between Peabody Energy and Natural Resource

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

Diversification Opportunities for Peabody Energy and Natural Resource

0.27

Correlation Coefficient

Peabody Energy  Natural Resource

Modest diversification

The 3 months correlation between Peabody and Natural is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Peabody Energy Corp and Natural Resource Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Resource Partners 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 Natural Resource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Resource Partners has no effect on the direction of Peabody Energy i.e., Peabody Energy and Natural Resource go up and down completely randomly.

Pair Corralation between Peabody Energy and Natural Resource

Considering the 90-day investment horizon Peabody Energy Corp is expected to under-perform the Natural Resource. In addition to that, Peabody Energy is 1.25 times more volatile than Natural Resource Partners. It trades about -0.18 of its total potential returns per unit of risk. Natural Resource Partners is currently generating about 0.0 per unit of volatility. If you would invest  10,663  in Natural Resource Partners on December 29, 2024 and sell it today you would lose (163.00) from holding Natural Resource Partners or give up 1.53% of portfolio value over 90 days.

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

Peabody Energy Corp  vs.  Natural Resource Partners

Peabody Energy Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Peabody Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Natural Resource Partners

Risk-Adjusted Performance

Very Weak

Over the last 90 days Natural Resource Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Natural Resource is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Peabody Energy and Natural Resource

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

The idea behind Peabody Energy Corp and Natural 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.