Correlation Between Natural Resource and Yanzhou Coal

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

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

Diversification Opportunities for Natural Resource and Yanzhou Coal

0.6

Correlation Coefficient

Natural Resource  Yanzhou Coal

Poor diversification

The 3 months correlation between Natural and Yanzhou is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Natural Resource Partners 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 Natural Resource 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 Natural Resource Partners 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 Natural Resource i.e., Natural Resource and Yanzhou Coal go up and down completely randomly.

Pair Corralation between Natural Resource and Yanzhou Coal

Considering the 90-day investment horizon Natural Resource Partners is expected to generate 1.47 times more return on investment than Yanzhou Coal. However, Natural Resource is 1.47 times more volatile than Yanzhou Coal Mining. It trades about 0.0 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  10,663  in Natural Resource Partners on December 29, 2024 and sell it today you would lose (163.00) from holding Natural Resource Partners or give up 1.53% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.31%
Values	Daily Returns

Natural Resource Partners  vs.  Yanzhou Coal Mining

Natural Resource Partners

Risk-Adjusted Performance

Very Weak

Over the last 90 days Natural Resource Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Natural Resource is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

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 Natural Resource and Yanzhou Coal

The main advantage of trading using opposite Natural Resource and Yanzhou Coal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Natural Resource 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 Natural Resource Partners 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.