Correlation Between Peabody Energy and Warrior Met

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

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

Diversification Opportunities for Peabody Energy and Warrior Met

0.13

Correlation Coefficient

Peabody Energy  Warrior Met

Average diversification

The 3 months correlation between Peabody and Warrior is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Peabody Energy Corp and Warrior Met Coal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Warrior Met Coal and Peabody Energy 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 Peabody Energy Corp are associated (or correlated) with Warrior Met. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Warrior Met Coal has no effect on the direction of Peabody Energy i.e., Peabody Energy and Warrior Met go up and down completely randomly.

Pair Corralation between Peabody Energy and Warrior Met

Considering the 90-day investment horizon Peabody Energy Corp is expected to under-perform the Warrior Met. But the stock apears to be less risky and, when comparing its historical volatility, Peabody Energy Corp is 1.88 times less risky than Warrior Met. The stock trades about -0.05 of its potential returns per unit of risk. The Warrior Met Coal is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  5,794  in Warrior Met Coal on January 25, 2024 and sell it today you would earn a total of  818.00  from holding Warrior Met Coal or generate 14.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

Peabody Energy Corp  vs.  Warrior Met Coal

Peabody Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Peabody Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Warrior Met Coal

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Warrior Met Coal are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Warrior Met is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Peabody Energy and Warrior Met

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

The idea behind Peabody Energy Corp and Warrior Met Coal 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.