Correlation Between China Petroleum and Nanhua Bio

Can any of the company-specific risk be diversified away by investing in both China Petroleum and Nanhua Bio 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 Nanhua Bio 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 Nanhua Bio Medicine, you can compare the effects of market volatilities on China Petroleum and Nanhua Bio 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 Nanhua Bio. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Petroleum and Nanhua Bio.

Diversification Opportunities for China Petroleum and Nanhua Bio

-0.13

Correlation Coefficient

China Petroleum  Nanhua Bio

Good diversification

The 3 months correlation between China and Nanhua is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding China Petroleum Chemical and Nanhua Bio Medicine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nanhua Bio Medicine 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 Nanhua Bio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nanhua Bio Medicine has no effect on the direction of China Petroleum i.e., China Petroleum and Nanhua Bio go up and down completely randomly.

Pair Corralation between China Petroleum and Nanhua Bio

Assuming the 90 days trading horizon China Petroleum Chemical is expected to under-perform the Nanhua Bio. But the stock apears to be less risky and, when comparing its historical volatility, China Petroleum Chemical is 2.11 times less risky than Nanhua Bio. The stock trades about -0.06 of its potential returns per unit of risk. The Nanhua Bio Medicine is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  765.00  in Nanhua Bio Medicine on August 31, 2024 and sell it today you would earn a total of  277.00  from holding Nanhua Bio Medicine or generate 36.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.28%
Values	Daily Returns

China Petroleum Chemical  vs.  Nanhua Bio Medicine

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 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.

Nanhua Bio Medicine

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nanhua Bio Medicine are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nanhua Bio sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Petroleum and Nanhua Bio

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

The idea behind China Petroleum Chemical and Nanhua Bio Medicine 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..