Correlation Between Maoming Petro and China Baoan

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

By analyzing existing cross correlation between Maoming Petro Chemical Shihua and China Baoan Group, you can compare the effects of market volatilities on Maoming Petro and China Baoan 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 Maoming Petro with a short position of China Baoan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Maoming Petro and China Baoan.

Diversification Opportunities for Maoming Petro and China Baoan

0.63

Correlation Coefficient

Maoming Petro  China Baoan

Poor diversification

The 3 months correlation between Maoming and China is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Maoming Petro Chemical Shihua and China Baoan Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Baoan Group and Maoming Petro 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 Maoming Petro Chemical Shihua are associated (or correlated) with China Baoan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Baoan Group has no effect on the direction of Maoming Petro i.e., Maoming Petro and China Baoan go up and down completely randomly.

Pair Corralation between Maoming Petro and China Baoan

Assuming the 90 days trading horizon Maoming Petro Chemical Shihua is expected to generate 1.05 times more return on investment than China Baoan. However, Maoming Petro is 1.05 times more volatile than China Baoan Group. It trades about 0.0 of its potential returns per unit of risk. China Baoan Group is currently generating about -0.01 per unit of risk. If you would invest  395.00  in Maoming Petro Chemical Shihua on October 5, 2024 and sell it today you would lose (35.00) from holding Maoming Petro Chemical Shihua or give up 8.86% of portfolio value over 90 days.

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

Maoming Petro Chemical Shihua  vs.  China Baoan Group

Maoming Petro Chemical

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Maoming Petro Chemical Shihua are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Maoming Petro is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

China Baoan Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Baoan Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Maoming Petro and China Baoan

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

The idea behind Maoming Petro Chemical Shihua and China Baoan Group 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.