Correlation Between Alliance Resource and Peabody Energy

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

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

Diversification Opportunities for Alliance Resource and Peabody Energy

0.28

Correlation Coefficient

Alliance Resource  Peabody Energy

Modest diversification

The 3 months correlation between Alliance and Peabody is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Resource Partners and Peabody Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Peabody Energy Corp and Alliance Resource 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 Alliance Resource Partners are associated (or correlated) with Peabody Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Peabody Energy Corp has no effect on the direction of Alliance Resource i.e., Alliance Resource and Peabody Energy go up and down completely randomly.

Pair Corralation between Alliance Resource and Peabody Energy

Given the investment horizon of 90 days Alliance Resource Partners is expected to generate 0.52 times more return on investment than Peabody Energy. However, Alliance Resource Partners is 1.94 times less risky than Peabody Energy. It trades about 0.16 of its potential returns per unit of risk. Peabody Energy Corp is currently generating about 0.0 per unit of risk. If you would invest  2,293  in Alliance Resource Partners on September 17, 2024 and sell it today you would earn a total of  349.00  from holding Alliance Resource Partners or generate 15.22% return on investment over 90 days.

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

Alliance Resource Partners  vs.  Peabody Energy Corp

Alliance Resource

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Resource Partners are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain essential indicators, Alliance Resource reported solid returns over the last few months and may actually be approaching a breakup point.

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 comparatively stable basic indicators, Peabody Energy is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Alliance Resource and Peabody Energy

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

The idea behind Alliance Resource Partners and Peabody Energy Corp 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.