Correlation Between China Petroleum and Digital China

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

Diversification Opportunities for China Petroleum and Digital China

-0.14

Correlation Coefficient

China Petroleum  Digital China

Good diversification

The 3 months correlation between China and Digital is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding China Petroleum Chemical and Digital China Information in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital China Information 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 Digital China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital China Information has no effect on the direction of China Petroleum i.e., China Petroleum and Digital China go up and down completely randomly.

Pair Corralation between China Petroleum and Digital China

Assuming the 90 days trading horizon China Petroleum Chemical is expected to under-perform the Digital China. But the stock apears to be less risky and, when comparing its historical volatility, China Petroleum Chemical is 3.92 times less risky than Digital China. The stock trades about -0.21 of its potential returns per unit of risk. The Digital China Information is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,174  in Digital China Information on December 4, 2024 and sell it today you would earn a total of  169.00  from holding Digital China Information or generate 14.4% return on investment over 90 days.

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

China Petroleum Chemical  vs.  Digital China Information

China Petroleum Chemical

Risk-Adjusted Performance

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Digital China Information

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Digital China Information are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Digital China sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Petroleum and Digital China

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

The idea behind China Petroleum Chemical and Digital China Information 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.