Correlation Between Bukit Asam and Whitehaven Coal

Can any of the company-specific risk be diversified away by investing in both Bukit Asam and Whitehaven 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 Bukit Asam and Whitehaven Coal 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 Whitehaven Coal Limited, you can compare the effects of market volatilities on Bukit Asam and Whitehaven 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 Bukit Asam with a short position of Whitehaven Coal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bukit Asam and Whitehaven Coal.

Diversification Opportunities for Bukit Asam and Whitehaven Coal

0.57

Correlation Coefficient

Bukit Asam  Whitehaven Coal

Very weak diversification

The 3 months correlation between Bukit and Whitehaven is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Bukit Asam Tbk and Whitehaven Coal Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Whitehaven Coal 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 Whitehaven Coal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Whitehaven Coal has no effect on the direction of Bukit Asam i.e., Bukit Asam and Whitehaven Coal go up and down completely randomly.

Pair Corralation between Bukit Asam and Whitehaven Coal

Assuming the 90 days horizon Bukit Asam Tbk is expected to generate 0.55 times more return on investment than Whitehaven Coal. However, Bukit Asam Tbk is 1.83 times less risky than Whitehaven Coal. It trades about 0.0 of its potential returns per unit of risk. Whitehaven Coal Limited is currently generating about -0.02 per unit of risk. If you would invest  401.00  in Bukit Asam Tbk on December 21, 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	Weak
Accuracy	100.0%
Values	Daily Returns

Bukit Asam Tbk  vs.  Whitehaven Coal Limited

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 current stock price disturbance, may contribute to short-term losses for the investors.

Whitehaven Coal

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Bukit Asam and Whitehaven Coal

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

The idea behind Bukit Asam Tbk and Whitehaven Coal Limited 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.