Correlation Between China Coal and Yanzhou Coal

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

Diversification Opportunities for China Coal and Yanzhou Coal

0.02

Correlation Coefficient

China Coal  Yanzhou Coal

Significant diversification

The 3 months correlation between China and Yanzhou is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding China Coal Energy and Yanzhou Coal Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yanzhou Coal Mining 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 Yanzhou Coal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yanzhou Coal Mining has no effect on the direction of China Coal i.e., China Coal and Yanzhou Coal go up and down completely randomly.

Pair Corralation between China Coal and Yanzhou Coal

Assuming the 90 days horizon China Coal Energy is expected to under-perform the Yanzhou Coal. In addition to that, China Coal is 1.26 times more volatile than Yanzhou Coal Mining. It trades about -0.12 of its total potential returns per unit of risk. Yanzhou Coal Mining is currently generating about -0.03 per unit of volatility. If you would invest  1,128  in Yanzhou Coal Mining on December 29, 2024 and sell it today you would lose (53.00) from holding Yanzhou Coal Mining or give up 4.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.31%
Values	Daily Returns

China Coal Energy  vs.  Yanzhou Coal Mining

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 conflicting 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.

Yanzhou Coal Mining

Risk-Adjusted Performance

Very Weak

Over the last 90 days Yanzhou Coal Mining has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Yanzhou Coal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Coal and Yanzhou Coal

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

The idea behind China Coal Energy and Yanzhou Coal Mining 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.