Correlation Between China Coal and New HopeLtd

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

Diversification Opportunities for China Coal and New HopeLtd

0.14

Correlation Coefficient

China Coal  New HopeLtd

Average diversification

The 3 months correlation between China and New is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding China Coal Energy and New Hope in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New HopeLtd 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 New HopeLtd. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New HopeLtd has no effect on the direction of China Coal i.e., China Coal and New HopeLtd go up and down completely randomly.

Pair Corralation between China Coal and New HopeLtd

Assuming the 90 days horizon China Coal Energy is expected to under-perform the New HopeLtd. But the pink sheet apears to be less risky and, when comparing its historical volatility, China Coal Energy is 1.13 times less risky than New HopeLtd. The pink sheet trades about -0.04 of its potential returns per unit of risk. The New Hope is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  339.00  in New Hope on October 25, 2024 and sell it today you would lose (36.00) from holding New Hope or give up 10.62% of portfolio value over 90 days.

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

China Coal Energy  vs.  New Hope

China Coal Energy

Risk-Adjusted Performance

0 of 100

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 latest inconsistent performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

New HopeLtd

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Hope has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with China Coal and New HopeLtd

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

The idea behind China Coal Energy and New Hope 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.