Correlation Between China Petrochemical and Century Iron

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

By analyzing existing cross correlation between China Petrochemical Development and Century Iron And, you can compare the effects of market volatilities on China Petrochemical and Century Iron 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 China Petrochemical with a short position of Century Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Petrochemical and Century Iron.

Diversification Opportunities for China Petrochemical and Century Iron

0.64

Correlation Coefficient

China Petrochemical  Century Iron

Poor diversification

The 3 months correlation between China and Century is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding China Petrochemical Developmen and Century Iron And in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Iron And and China Petrochemical 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 China Petrochemical Development are associated (or correlated) with Century Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Iron And has no effect on the direction of China Petrochemical i.e., China Petrochemical and Century Iron go up and down completely randomly.

Pair Corralation between China Petrochemical and Century Iron

Assuming the 90 days trading horizon China Petrochemical Development is expected to under-perform the Century Iron. But the stock apears to be less risky and, when comparing its historical volatility, China Petrochemical Development is 1.86 times less risky than Century Iron. The stock trades about -0.18 of its potential returns per unit of risk. The Century Iron And is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  20,650  in Century Iron And on September 14, 2024 and sell it today you would lose (2,650) from holding Century Iron And or give up 12.83% of portfolio value over 90 days.

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

China Petrochemical Developmen  vs.  Century Iron And

China Petrochemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Petrochemical Development has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Century Iron And

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Century Iron And has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with China Petrochemical and Century Iron

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

The idea behind China Petrochemical Development and Century Iron And 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.