Correlation Between Gladstone Investment and China Coal

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

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

Diversification Opportunities for Gladstone Investment and China Coal

0.33

Correlation Coefficient

Gladstone Investment  China Coal

Weak diversification

The 3 months correlation between Gladstone and China is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Gladstone Investment 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 Gladstone Investment 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 Gladstone Investment 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 Gladstone Investment i.e., Gladstone Investment and China Coal go up and down completely randomly.

Pair Corralation between Gladstone Investment and China Coal

Assuming the 90 days horizon Gladstone Investment is expected to generate 4.56 times less return on investment than China Coal. But when comparing it to its historical volatility, Gladstone Investment is 2.15 times less risky than China Coal. It trades about 0.05 of its potential returns per unit of risk. China Coal Energy is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  72.00  in China Coal Energy on September 26, 2024 and sell it today you would earn a total of  36.00  from holding China Coal Energy or generate 50.0% return on investment over 90 days.

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

Gladstone Investment  vs.  China Coal Energy

Gladstone Investment

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gladstone Investment are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Gladstone Investment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

China Coal Energy

Risk-Adjusted Performance

0 of 100

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 nearly stable basic indicators, China Coal is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Gladstone Investment and China Coal

The main advantage of trading using opposite Gladstone Investment and China Coal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gladstone Investment 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 Gladstone Investment 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.