Correlation Between Kaiser Aluminum and China Coal

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

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

Diversification Opportunities for Kaiser Aluminum and China Coal

-0.04

Correlation Coefficient

Kaiser Aluminum  China Coal

Good diversification

The 3 months correlation between Kaiser and China is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Kaiser Aluminum 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 Kaiser Aluminum 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 Kaiser Aluminum 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 Kaiser Aluminum i.e., Kaiser Aluminum and China Coal go up and down completely randomly.

Pair Corralation between Kaiser Aluminum and China Coal

Given the investment horizon of 90 days Kaiser Aluminum is expected to generate 0.84 times more return on investment than China Coal. However, Kaiser Aluminum is 1.18 times less risky than China Coal. It trades about -0.04 of its potential returns per unit of risk. China Coal Energy is currently generating about -0.12 per unit of risk. If you would invest  6,926  in Kaiser Aluminum on December 29, 2024 and sell it today you would lose (435.00) from holding Kaiser Aluminum or give up 6.28% of portfolio value over 90 days.

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

Kaiser Aluminum  vs.  China Coal Energy

Kaiser Aluminum

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kaiser Aluminum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Kaiser Aluminum is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

China Coal Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Coal Energy 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 Kaiser Aluminum and China Coal

The main advantage of trading using opposite Kaiser Aluminum and China Coal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kaiser Aluminum 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 Kaiser Aluminum 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.

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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.