Correlation Between Peabody Energy and China Shenhua

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

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

Diversification Opportunities for Peabody Energy and China Shenhua

0.71

Correlation Coefficient

Peabody Energy  China Shenhua

Poor diversification

The 3 months correlation between Peabody and China is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Peabody Energy 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 Peabody 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 Peabody Energy 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 Peabody Energy i.e., Peabody Energy and China Shenhua go up and down completely randomly.

Pair Corralation between Peabody Energy and China Shenhua

Assuming the 90 days horizon Peabody Energy is expected to under-perform the China Shenhua. But the stock apears to be less risky and, when comparing its historical volatility, Peabody Energy is 1.12 times less risky than China Shenhua. The stock trades about -0.43 of its potential returns per unit of risk. The China Shenhua Energy is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  399.00  in China Shenhua Energy on December 4, 2024 and sell it today you would lose (37.00) from holding China Shenhua Energy or give up 9.27% of portfolio value over 90 days.

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

Peabody Energy  vs.  China Shenhua Energy

Peabody Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Peabody Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Peabody Energy and China Shenhua

The main advantage of trading using opposite Peabody Energy and China Shenhua positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Peabody Energy 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 Peabody Energy 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.