Correlation Between Geo Energy and Yanzhou Coal

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

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

Diversification Opportunities for Geo Energy and Yanzhou Coal

0.62

Correlation Coefficient

Geo Energy  Yanzhou Coal

Poor diversification

The 3 months correlation between Geo and Yanzhou is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Geo Energy Resources 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 Geo Energy 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 Geo Energy Resources 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 Geo Energy i.e., Geo Energy and Yanzhou Coal go up and down completely randomly.

Pair Corralation between Geo Energy and Yanzhou Coal

Assuming the 90 days horizon Geo Energy Resources is expected to generate 1.55 times more return on investment than Yanzhou Coal. However, Geo Energy is 1.55 times more volatile than Yanzhou Coal Mining. It trades about 0.18 of its potential returns per unit of risk. Yanzhou Coal Mining is currently generating about -0.03 per unit of risk. If you would invest  17.00  in Geo Energy Resources on December 29, 2024 and sell it today you would earn a total of  6.00  from holding Geo Energy Resources or generate 35.29% return on investment over 90 days.

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

Geo Energy Resources  vs.  Yanzhou Coal Mining

Geo Energy Resources

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Geo Energy Resources are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Geo Energy reported solid returns over the last few months and may actually be approaching a breakup point.

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 Geo Energy and Yanzhou Coal

The main advantage of trading using opposite Geo Energy and Yanzhou Coal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Geo Energy 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 Geo Energy Resources 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.