Correlation Between Indo Tambangraya and China Shenhua

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

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

Diversification Opportunities for Indo Tambangraya and China Shenhua

0.3

Correlation Coefficient

Indo Tambangraya  China Shenhua

Weak diversification

The 3 months correlation between Indo and China is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Indo Tambangraya Megah and China Shenhua Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Shenhua Energy and Indo Tambangraya 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 Indo Tambangraya Megah are associated (or correlated) with China Shenhua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Shenhua Energy has no effect on the direction of Indo Tambangraya i.e., Indo Tambangraya and China Shenhua go up and down completely randomly.

Pair Corralation between Indo Tambangraya and China Shenhua

Assuming the 90 days horizon Indo Tambangraya Megah is expected to under-perform the China Shenhua. In addition to that, Indo Tambangraya is 1.9 times more volatile than China Shenhua Energy. It trades about -0.06 of its total potential returns per unit of risk. China Shenhua Energy is currently generating about -0.01 per unit of volatility. If you would invest  1,669  in China Shenhua Energy on December 28, 2024 and sell it today you would lose (29.00) from holding China Shenhua Energy or give up 1.74% of portfolio value over 90 days.

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

Indo Tambangraya Megah  vs.  China Shenhua Energy

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.

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. In spite of fairly strong basic indicators, China Shenhua is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Indo Tambangraya and China Shenhua

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

The idea behind Indo Tambangraya Megah and China Shenhua 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.

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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 Commodity Directory module to find actively traded commodities issued by global exchanges.