Correlation Between DR and PetroChina

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

By analyzing existing cross correlation between DR Limited and PetroChina Co Ltd, you can compare the effects of market volatilities on DR and PetroChina 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 DR with a short position of PetroChina. Check out your portfolio center. Please also check ongoing floating volatility patterns of DR and PetroChina.

Diversification Opportunities for DR and PetroChina

0.25

Correlation Coefficient

DR  PetroChina

Modest diversification

The 3 months correlation between DR and PetroChina is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding DR Limited and PetroChina Co Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetroChina and DR 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 DR Limited are associated (or correlated) with PetroChina. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PetroChina has no effect on the direction of DR i.e., DR and PetroChina go up and down completely randomly.

Pair Corralation between DR and PetroChina

Assuming the 90 days trading horizon DR Limited is expected to generate 1.68 times more return on investment than PetroChina. However, DR is 1.68 times more volatile than PetroChina Co Ltd. It trades about 0.19 of its potential returns per unit of risk. PetroChina Co Ltd is currently generating about 0.09 per unit of risk. If you would invest  1,781  in DR Limited on September 13, 2024 and sell it today you would earn a total of  748.00  from holding DR Limited or generate 42.0% return on investment over 90 days.

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

DR Limited  vs.  PetroChina Co Ltd

DR Limited

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DR Limited are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, DR sustained solid returns over the last few months and may actually be approaching a breakup point.

PetroChina

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PetroChina Co Ltd are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, PetroChina may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with DR and PetroChina

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

The idea behind DR Limited and PetroChina Co Ltd 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.