Correlation Between Whitehaven Coal and Peabody Energy

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

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

Diversification Opportunities for Whitehaven Coal and Peabody Energy

0.68

Correlation Coefficient

Whitehaven Coal  Peabody Energy

Poor diversification

The 3 months correlation between Whitehaven and Peabody is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Whitehaven Coal Limited and Peabody Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Peabody Energy and Whitehaven Coal 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 Whitehaven Coal Limited are associated (or correlated) with Peabody Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Peabody Energy has no effect on the direction of Whitehaven Coal i.e., Whitehaven Coal and Peabody Energy go up and down completely randomly.

Pair Corralation between Whitehaven Coal and Peabody Energy

Assuming the 90 days horizon Whitehaven Coal Limited is expected to under-perform the Peabody Energy. But the stock apears to be less risky and, when comparing its historical volatility, Whitehaven Coal Limited is 1.03 times less risky than Peabody Energy. The stock trades about 0.0 of its potential returns per unit of risk. The Peabody Energy is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,145  in Peabody Energy on September 13, 2024 and sell it today you would lose (20.00) from holding Peabody Energy or give up 0.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.6%
Values	Daily Returns

Whitehaven Coal Limited  vs.  Peabody Energy

Whitehaven Coal

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Whitehaven Coal Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Whitehaven Coal may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Peabody Energy

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Peabody Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Peabody Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Whitehaven Coal and Peabody Energy

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

The idea behind Whitehaven Coal Limited and Peabody 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.

Check out your portfolio center.

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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.