Correlation Between Qantas Airways and Ichor Coal

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

By analyzing existing cross correlation between Qantas Airways Limited and Ichor Coal NV, you can compare the effects of market volatilities on Qantas Airways and Ichor 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 Qantas Airways with a short position of Ichor Coal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Qantas Airways and Ichor Coal.

Diversification Opportunities for Qantas Airways and Ichor Coal

0.06

Correlation Coefficient

Qantas Airways  Ichor Coal

Significant diversification

The 3 months correlation between Qantas and Ichor is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Qantas Airways Limited and Ichor Coal NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ichor Coal NV and Qantas Airways 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 Qantas Airways Limited are associated (or correlated) with Ichor Coal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ichor Coal NV has no effect on the direction of Qantas Airways i.e., Qantas Airways and Ichor Coal go up and down completely randomly.

Pair Corralation between Qantas Airways and Ichor Coal

Assuming the 90 days horizon Qantas Airways is expected to generate 62.21 times less return on investment than Ichor Coal. But when comparing it to its historical volatility, Qantas Airways Limited is 10.0 times less risky than Ichor Coal. It trades about 0.01 of its potential returns per unit of risk. Ichor Coal NV is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2.40  in Ichor Coal NV on December 26, 2024 and sell it today you would lose (0.40) from holding Ichor Coal NV or give up 16.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	91.8%
Values	Daily Returns

Qantas Airways Limited  vs.  Ichor Coal NV

Qantas Airways

Risk-Adjusted Performance

Very Weak

Over the last 90 days Qantas Airways Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Qantas Airways is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Ichor Coal NV

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ichor Coal NV are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Ichor Coal displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Qantas Airways and Ichor Coal

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

The idea behind Qantas Airways Limited and Ichor Coal NV 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.