Correlation Between NACCO Industries and Peabody Energy

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

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

Diversification Opportunities for NACCO Industries and Peabody Energy

0.75

Correlation Coefficient

NACCO Industries  Peabody Energy

Poor diversification

The 3 months correlation between NACCO and Peabody is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding NACCO Industries and Peabody Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Peabody Energy Corp and NACCO Industries 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 NACCO Industries are associated (or correlated) with Peabody Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Peabody Energy Corp has no effect on the direction of NACCO Industries i.e., NACCO Industries and Peabody Energy go up and down completely randomly.

Pair Corralation between NACCO Industries and Peabody Energy

Allowing for the 90-day total investment horizon NACCO Industries is expected to generate 0.91 times more return on investment than Peabody Energy. However, NACCO Industries is 1.1 times less risky than Peabody Energy. It trades about 0.1 of its potential returns per unit of risk. Peabody Energy Corp is currently generating about 0.03 per unit of risk. If you would invest  2,765  in NACCO Industries on August 30, 2024 and sell it today you would earn a total of  437.00  from holding NACCO Industries or generate 15.8% return on investment over 90 days.

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

NACCO Industries  vs.  Peabody Energy Corp

NACCO Industries

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NACCO Industries are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, NACCO Industries exhibited solid returns over the last few months and may actually be approaching a breakup point.

Peabody Energy Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Peabody Energy Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Peabody Energy may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with NACCO Industries and Peabody Energy

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

The idea behind NACCO Industries and Peabody Energy Corp 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.