Correlation Between Peabody Energy and TFS Financial

Can any of the company-specific risk be diversified away by investing in both Peabody Energy and TFS Financial 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 TFS Financial 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 TFS Financial, you can compare the effects of market volatilities on Peabody Energy and TFS Financial 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 TFS Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Peabody Energy and TFS Financial.

Diversification Opportunities for Peabody Energy and TFS Financial

0.73

Correlation Coefficient

Peabody Energy  TFS Financial

Poor diversification

The 3 months correlation between Peabody and TFS is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Peabody Energy Corp and TFS Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TFS Financial 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 TFS Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TFS Financial has no effect on the direction of Peabody Energy i.e., Peabody Energy and TFS Financial go up and down completely randomly.

Pair Corralation between Peabody Energy and TFS Financial

Considering the 90-day investment horizon Peabody Energy Corp is expected to under-perform the TFS Financial. In addition to that, Peabody Energy is 1.35 times more volatile than TFS Financial. It trades about -0.02 of its total potential returns per unit of risk. TFS Financial is currently generating about 0.0 per unit of volatility. If you would invest  1,288  in TFS Financial on January 25, 2024 and sell it today you would lose (58.00) from holding TFS Financial or give up 4.5% of portfolio value over 90 days.

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

Peabody Energy Corp  vs.  TFS Financial

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 weak 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.

TFS Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TFS Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Peabody Energy and TFS Financial

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

The idea behind Peabody Energy Corp and TFS Financial 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.