Correlation Between China Shenhua and Indo Tambangraya

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

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

Diversification Opportunities for China Shenhua and Indo Tambangraya

0.58

Correlation Coefficient

China Shenhua  Indo Tambangraya

Very weak diversification

The 3 months correlation between China and Indo is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding China Shenhua Energy and Indo Tambangraya Megah in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indo Tambangraya Megah and China Shenhua 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 Shenhua Energy are associated (or correlated) with Indo Tambangraya. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indo Tambangraya Megah has no effect on the direction of China Shenhua i.e., China Shenhua and Indo Tambangraya go up and down completely randomly.

Pair Corralation between China Shenhua and Indo Tambangraya

Assuming the 90 days horizon China Shenhua Energy is expected to under-perform the Indo Tambangraya. But the pink sheet apears to be less risky and, when comparing its historical volatility, China Shenhua Energy is 1.4 times less risky than Indo Tambangraya. The pink sheet trades about -0.13 of its potential returns per unit of risk. The Indo Tambangraya Megah is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  335.00  in Indo Tambangraya Megah on December 28, 2024 and sell it today you would lose (50.00) from holding Indo Tambangraya Megah or give up 14.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

China Shenhua Energy  vs.  Indo Tambangraya Megah

China Shenhua Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Shenhua Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Indo Tambangraya Megah

Risk-Adjusted Performance

Very Weak

Over the last 90 days Indo Tambangraya Megah 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.

Pair Trading with China Shenhua and Indo Tambangraya

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

The idea behind China Shenhua Energy and Indo Tambangraya Megah 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.