Correlation Between Yancoal Australia and China Coal

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

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

Diversification Opportunities for Yancoal Australia and China Coal

0.61

Correlation Coefficient

Yancoal Australia  China Coal

Poor diversification

The 3 months correlation between Yancoal and China is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Yancoal Australia and China Coal Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Coal Energy and Yancoal Australia 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 Yancoal Australia are associated (or correlated) with China Coal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Coal Energy has no effect on the direction of Yancoal Australia i.e., Yancoal Australia and China Coal go up and down completely randomly.

Pair Corralation between Yancoal Australia and China Coal

Assuming the 90 days trading horizon Yancoal Australia is expected to under-perform the China Coal. In addition to that, Yancoal Australia is 1.41 times more volatile than China Coal Energy. It trades about -0.1 of its total potential returns per unit of risk. China Coal Energy is currently generating about -0.09 per unit of volatility. If you would invest  107.00  in China Coal Energy on December 27, 2024 and sell it today you would lose (13.00) from holding China Coal Energy or give up 12.15% of portfolio value over 90 days.

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

Yancoal Australia  vs.  China Coal Energy

Yancoal Australia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Yancoal Australia has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

China Coal Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Coal Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Yancoal Australia and China Coal

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

The idea behind Yancoal Australia and China Coal 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.