Correlation Between China Coal and Kaiser Aluminum

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

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

Diversification Opportunities for China Coal and Kaiser Aluminum

-0.04

Correlation Coefficient

China Coal  Kaiser Aluminum

Good diversification

The 3 months correlation between China and Kaiser is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding China Coal Energy and Kaiser Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kaiser Aluminum and China Coal 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 China Coal Energy are associated (or correlated) with Kaiser Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kaiser Aluminum has no effect on the direction of China Coal i.e., China Coal and Kaiser Aluminum go up and down completely randomly.

Pair Corralation between China Coal and Kaiser Aluminum

Assuming the 90 days horizon China Coal Energy is expected to under-perform the Kaiser Aluminum. In addition to that, China Coal is 1.18 times more volatile than Kaiser Aluminum. It trades about -0.12 of its total potential returns per unit of risk. Kaiser Aluminum is currently generating about -0.04 per unit of volatility. If you would invest  6,926  in Kaiser Aluminum on December 29, 2024 and sell it today you would lose (435.00) from holding Kaiser Aluminum or give up 6.28% of portfolio value over 90 days.

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

China Coal Energy  vs.  Kaiser Aluminum

China Coal Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Coal Energy 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 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.

Kaiser Aluminum

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kaiser Aluminum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Kaiser Aluminum is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with China Coal and Kaiser Aluminum

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

The idea behind China Coal Energy and Kaiser Aluminum 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.