Correlation Between Exxaro Resources and China Coal

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

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

Diversification Opportunities for Exxaro Resources and China Coal

-0.33

Correlation Coefficient

Exxaro Resources  China Coal

Very good diversification

The 3 months correlation between Exxaro and China is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Exxaro Resources Limited 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 Exxaro Resources 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 Exxaro Resources Limited 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 Exxaro Resources i.e., Exxaro Resources and China Coal go up and down completely randomly.

Pair Corralation between Exxaro Resources and China Coal

If you would invest  2,255  in China Coal Energy on September 5, 2024 and sell it today you would earn a total of  105.00  from holding China Coal Energy or generate 4.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	1.59%
Values	Daily Returns

Exxaro Resources Limited  vs.  China Coal Energy

Exxaro Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Exxaro Resources Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Exxaro Resources is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

China Coal Energy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Coal Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, China Coal may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Exxaro Resources and China Coal

The main advantage of trading using opposite Exxaro Resources and China Coal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxaro Resources 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 Exxaro Resources Limited 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.