Correlation Between China World and CNOOC

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

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

Diversification Opportunities for China World and CNOOC

0.49

Correlation Coefficient

China World  CNOOC

Very weak diversification

The 3 months correlation between China and CNOOC is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding China World Trade and CNOOC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNOOC Limited and China World 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 World Trade are associated (or correlated) with CNOOC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CNOOC Limited has no effect on the direction of China World i.e., China World and CNOOC go up and down completely randomly.

Pair Corralation between China World and CNOOC

Assuming the 90 days trading horizon China World is expected to generate 1.77 times less return on investment than CNOOC. But when comparing it to its historical volatility, China World Trade is 1.19 times less risky than CNOOC. It trades about 0.05 of its potential returns per unit of risk. CNOOC Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,891  in CNOOC Limited on September 14, 2024 and sell it today you would earn a total of  845.00  from holding CNOOC Limited or generate 44.69% return on investment over 90 days.

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

China World Trade  vs.  CNOOC Limited

China World Trade

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China World Trade has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China World is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

CNOOC Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CNOOC Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, CNOOC may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with China World and CNOOC

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

The idea behind China World Trade and CNOOC Limited 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.