Correlation Between Bukit Asam and China Shenhua

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

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

Diversification Opportunities for Bukit Asam and China Shenhua

0.61

Correlation Coefficient

Bukit Asam  China Shenhua

Poor diversification

The 3 months correlation between Bukit and China is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Bukit Asam Tbk 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 Bukit Asam 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 Bukit Asam Tbk 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 Bukit Asam i.e., Bukit Asam and China Shenhua go up and down completely randomly.

Pair Corralation between Bukit Asam and China Shenhua

Assuming the 90 days horizon Bukit Asam Tbk is expected to generate 0.6 times more return on investment than China Shenhua. However, Bukit Asam Tbk is 1.68 times less risky than China Shenhua. It trades about 0.0 of its potential returns per unit of risk. China Shenhua Energy is currently generating about -0.13 per unit of risk. If you would invest  401.00  in Bukit Asam Tbk on December 29, 2024 and sell it today you would lose (1.00) from holding Bukit Asam Tbk or give up 0.25% of portfolio value over 90 days.

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

Bukit Asam Tbk  vs.  China Shenhua Energy

Bukit Asam Tbk

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bukit Asam Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Bukit Asam is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

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 weak performance in the last few months, the Stock's technical and fundamental 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 Bukit Asam and China Shenhua

The main advantage of trading using opposite Bukit Asam and China Shenhua positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bukit Asam 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 Bukit Asam Tbk 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.