Correlation Between Thungela Resources and Adaro Energy

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

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

Diversification Opportunities for Thungela Resources and Adaro Energy

-0.44

Correlation Coefficient

Thungela Resources  Adaro Energy

Very good diversification

The 3 months correlation between Thungela and Adaro is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Thungela Resources Limited and Adaro Energy Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adaro Energy Tbk and Thungela Resources 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 Thungela Resources Limited are associated (or correlated) with Adaro Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adaro Energy Tbk has no effect on the direction of Thungela Resources i.e., Thungela Resources and Adaro Energy go up and down completely randomly.

Pair Corralation between Thungela Resources and Adaro Energy

Assuming the 90 days horizon Thungela Resources Limited is expected to generate 0.55 times more return on investment than Adaro Energy. However, Thungela Resources Limited is 1.81 times less risky than Adaro Energy. It trades about -0.03 of its potential returns per unit of risk. Adaro Energy Tbk is currently generating about -0.02 per unit of risk. If you would invest  745.00  in Thungela Resources Limited on September 18, 2024 and sell it today you would lose (25.00) from holding Thungela Resources Limited or give up 3.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.0%
Values	Daily Returns

Thungela Resources Limited  vs.  Adaro Energy Tbk

Thungela Resources

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Thungela Resources Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Thungela Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Adaro Energy Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Thungela Resources and Adaro Energy

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

The idea behind Thungela Resources Limited and Adaro Energy Tbk 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.