Correlation Between Yanzhou Coal and Geo Energy

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

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

Diversification Opportunities for Yanzhou Coal and Geo Energy

0.12

Correlation Coefficient

Yanzhou Coal  Geo Energy

Average diversification

The 3 months correlation between Yanzhou and Geo is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Yanzhou Coal Mining and Geo Energy Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Geo Energy Resources and Yanzhou 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 Yanzhou Coal Mining are associated (or correlated) with Geo Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Geo Energy Resources has no effect on the direction of Yanzhou Coal i.e., Yanzhou Coal and Geo Energy go up and down completely randomly.

Pair Corralation between Yanzhou Coal and Geo Energy

Assuming the 90 days horizon Yanzhou Coal Mining is expected to generate 1.44 times more return on investment than Geo Energy. However, Yanzhou Coal is 1.44 times more volatile than Geo Energy Resources. It trades about -0.03 of its potential returns per unit of risk. Geo Energy Resources is currently generating about -0.17 per unit of risk. If you would invest  1,245  in Yanzhou Coal Mining on September 1, 2024 and sell it today you would lose (92.00) from holding Yanzhou Coal Mining or give up 7.39% of portfolio value over 90 days.

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

Yanzhou Coal Mining  vs.  Geo Energy Resources

Yanzhou Coal Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yanzhou Coal Mining has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Yanzhou Coal is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Geo Energy Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Geo Energy Resources 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 December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Yanzhou Coal and Geo Energy

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

The idea behind Yanzhou Coal Mining and Geo Energy Resources 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.