Correlation Between Whitehaven Coal and Adaro Energy

Can any of the company-specific risk be diversified away by investing in both Whitehaven Coal and Adaro 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 Adaro 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 Adaro Energy Tbk, you can compare the effects of market volatilities on Whitehaven Coal and Adaro 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 Adaro Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Whitehaven Coal and Adaro Energy.

Diversification Opportunities for Whitehaven Coal and Adaro Energy

-0.43

Correlation Coefficient

Whitehaven Coal  Adaro Energy

Very good diversification

The 3 months correlation between Whitehaven and Adaro is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Whitehaven Coal Limited and Adaro Energy Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adaro Energy Tbk 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 Adaro Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adaro Energy Tbk has no effect on the direction of Whitehaven Coal i.e., Whitehaven Coal and Adaro Energy go up and down completely randomly.

Pair Corralation between Whitehaven Coal and Adaro Energy

Assuming the 90 days horizon Whitehaven Coal Limited is expected to under-perform the Adaro Energy. But the pink sheet apears to be less risky and, when comparing its historical volatility, Whitehaven Coal Limited is 15.72 times less risky than Adaro Energy. The pink sheet trades about -0.19 of its potential returns per unit of risk. The Adaro Energy Tbk is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  546.00  in Adaro Energy Tbk on October 10, 2024 and sell it today you would earn a total of  449.00  from holding Adaro Energy Tbk or generate 82.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Whitehaven Coal Limited  vs.  Adaro Energy Tbk

Whitehaven Coal

Risk-Adjusted Performance

0 of 100

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

Adaro Energy Tbk

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Adaro Energy Tbk are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Adaro Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Whitehaven Coal and Adaro Energy

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

The idea behind Whitehaven Coal Limited and Adaro Energy Tbk 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 Global Correlations module to find global opportunities by holding instruments from different markets.