Correlation Between Charter Communications and China Coal

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

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

Diversification Opportunities for Charter Communications and China Coal

-0.01

Correlation Coefficient

Charter Communications  China Coal

Good diversification

The 3 months correlation between Charter and China is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Charter Communications and China Coal Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Coal Energy and Charter Communications 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 Charter Communications are associated (or correlated) with China Coal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Coal Energy has no effect on the direction of Charter Communications i.e., Charter Communications and China Coal go up and down completely randomly.

Pair Corralation between Charter Communications and China Coal

Assuming the 90 days trading horizon Charter Communications is expected to generate 1.41 times less return on investment than China Coal. But when comparing it to its historical volatility, Charter Communications is 1.39 times less risky than China Coal. It trades about 0.08 of its potential returns per unit of risk. China Coal Energy is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  79.00  in China Coal Energy on October 7, 2024 and sell it today you would earn a total of  32.00  from holding China Coal Energy or generate 40.51% return on investment over 90 days.

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

Charter Communications  vs.  China Coal Energy

Charter Communications

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Charter Communications are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Charter Communications unveiled solid returns over the last few months and may actually be approaching a breakup point.

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. Despite latest fragile performance, the Stock's basic 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 Charter Communications and China Coal

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

The idea behind Charter Communications and China Coal Energy 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.

Check out your portfolio center.

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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.