Correlation Between Yancoal Australia and Adaro Energy

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

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

Diversification Opportunities for Yancoal Australia and Adaro Energy

-0.14

Correlation Coefficient

Yancoal Australia  Adaro Energy

Good diversification

The 3 months correlation between Yancoal and Adaro is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Yancoal Australia 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 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 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 Yancoal Australia i.e., Yancoal Australia and Adaro Energy go up and down completely randomly.

Pair Corralation between Yancoal Australia and Adaro Energy

Assuming the 90 days horizon Yancoal Australia is expected to under-perform the Adaro Energy. But the pink sheet apears to be less risky and, when comparing its historical volatility, Yancoal Australia is 3.33 times less risky than Adaro Energy. The pink sheet trades about -0.03 of its potential returns per unit of risk. The Adaro Energy Tbk is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  403.00  in Adaro Energy Tbk on November 28, 2024 and sell it today you would earn a total of  282.00  from holding Adaro Energy Tbk or generate 69.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.83%
Values	Daily Returns

Yancoal Australia  vs.  Adaro Energy Tbk

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. Despite latest fragile 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.

Adaro Energy Tbk

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Adaro Energy Tbk are ranked lower than 10 (%) 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 Yancoal Australia and Adaro Energy

The main advantage of trading using opposite Yancoal Australia and Adaro Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Yancoal Australia 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 Yancoal Australia 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.

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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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.