Correlation Between China Petroleum and Tianjin Yiyi

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

Diversification Opportunities for China Petroleum and Tianjin Yiyi

-0.14

Correlation Coefficient

China Petroleum  Tianjin Yiyi

Good diversification

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

Pair Corralation between China Petroleum and Tianjin Yiyi

Assuming the 90 days trading horizon China Petroleum Chemical is expected to under-perform the Tianjin Yiyi. But the stock apears to be less risky and, when comparing its historical volatility, China Petroleum Chemical is 2.95 times less risky than Tianjin Yiyi. The stock trades about -0.24 of its potential returns per unit of risk. The Tianjin Yiyi Hygiene is currently generating about 0.44 of returns per unit of risk over similar time horizon. If you would invest  1,640  in Tianjin Yiyi Hygiene on October 23, 2024 and sell it today you would earn a total of  580.00  from holding Tianjin Yiyi Hygiene or generate 35.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

China Petroleum Chemical  vs.  Tianjin Yiyi Hygiene

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.

Tianjin Yiyi Hygiene

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tianjin Yiyi Hygiene are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tianjin Yiyi sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Petroleum and Tianjin Yiyi

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

The idea behind China Petroleum Chemical and Tianjin Yiyi Hygiene 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.