Correlation Between HMS Bergbau and China Coal

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

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

Diversification Opportunities for HMS Bergbau and China Coal

0.57

Correlation Coefficient

HMS Bergbau  China Coal

Very weak diversification

The 3 months correlation between HMS and China is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding HMS Bergbau AG 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 HMS Bergbau 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 HMS Bergbau AG 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 HMS Bergbau i.e., HMS Bergbau and China Coal go up and down completely randomly.

Pair Corralation between HMS Bergbau and China Coal

Assuming the 90 days trading horizon HMS Bergbau is expected to generate 2.64 times less return on investment than China Coal. But when comparing it to its historical volatility, HMS Bergbau AG is 4.06 times less risky than China Coal. It trades about 0.11 of its potential returns per unit of risk. China Coal Energy is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  47.00  in China Coal Energy on September 23, 2024 and sell it today you would earn a total of  62.00  from holding China Coal Energy or generate 131.91% return on investment over 90 days.

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

HMS Bergbau AG  vs.  China Coal Energy

HMS Bergbau AG

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HMS Bergbau AG are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, HMS Bergbau may actually be approaching a critical reversion point that can send shares even higher in January 2025.

China Coal Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Coal Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Coal may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with HMS Bergbau and China Coal

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

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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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.