Correlation Between China Petroleum and Shenzhen Centralcon

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

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

Diversification Opportunities for China Petroleum and Shenzhen Centralcon

-0.11

Correlation Coefficient

China Petroleum  Shenzhen Centralcon

Good diversification

The 3 months correlation between China and Shenzhen is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding China Petroleum Chemical and Shenzhen Centralcon Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Centralcon and China Petroleum 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 Petroleum Chemical are associated (or correlated) with Shenzhen Centralcon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Centralcon has no effect on the direction of China Petroleum i.e., China Petroleum and Shenzhen Centralcon go up and down completely randomly.

Pair Corralation between China Petroleum and Shenzhen Centralcon

Assuming the 90 days trading horizon China Petroleum Chemical is expected to generate 0.4 times more return on investment than Shenzhen Centralcon. However, China Petroleum Chemical is 2.49 times less risky than Shenzhen Centralcon. It trades about -0.09 of its potential returns per unit of risk. Shenzhen Centralcon Investment is currently generating about -0.05 per unit of risk. If you would invest  659.00  in China Petroleum Chemical on October 23, 2024 and sell it today you would lose (42.00) from holding China Petroleum Chemical or give up 6.37% of portfolio value over 90 days.

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

China Petroleum Chemical  vs.  Shenzhen Centralcon Investment

China Petroleum Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Shenzhen Centralcon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shenzhen Centralcon Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with China Petroleum and Shenzhen Centralcon

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

The idea behind China Petroleum Chemical and Shenzhen Centralcon Investment 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.