Correlation Between Yancoal Australia and Thungela Resources

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

By analyzing existing cross correlation between Yancoal Australia and Thungela Resources Limited, you can compare the effects of market volatilities on Yancoal Australia and Thungela Resources 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 Thungela Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yancoal Australia and Thungela Resources.

Diversification Opportunities for Yancoal Australia and Thungela Resources

0.72

Correlation Coefficient

Yancoal Australia  Thungela Resources

Poor diversification

The 3 months correlation between Yancoal and Thungela is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Yancoal Australia and Thungela Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thungela Resources 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 Thungela Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thungela Resources has no effect on the direction of Yancoal Australia i.e., Yancoal Australia and Thungela Resources go up and down completely randomly.

Pair Corralation between Yancoal Australia and Thungela Resources

Assuming the 90 days horizon Yancoal Australia is expected to generate 1.09 times less return on investment than Thungela Resources. But when comparing it to its historical volatility, Yancoal Australia is 1.32 times less risky than Thungela Resources. It trades about 0.12 of its potential returns per unit of risk. Thungela Resources Limited is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  613.00  in Thungela Resources Limited on September 1, 2024 and sell it today you would earn a total of  106.00  from holding Thungela Resources Limited or generate 17.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	92.06%
Values	Daily Returns

Yancoal Australia  vs.  Thungela Resources Limited

Yancoal Australia

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Yancoal Australia are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Yancoal Australia reported solid returns over the last few months and may actually be approaching a breakup point.

Thungela Resources

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Thungela Resources Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Thungela Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Yancoal Australia and Thungela Resources

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

The idea behind Yancoal Australia and Thungela Resources 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.