Correlation Between China Petroleum and Yantai Jereh

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

Diversification Opportunities for China Petroleum and Yantai Jereh

-0.56

Correlation Coefficient

China Petroleum  Yantai Jereh

Excellent diversification

The 3 months correlation between China and Yantai is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding China Petroleum Chemical and Yantai Jereh Oilfield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yantai Jereh Oilfield 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 Yantai Jereh. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yantai Jereh Oilfield has no effect on the direction of China Petroleum i.e., China Petroleum and Yantai Jereh go up and down completely randomly.

Pair Corralation between China Petroleum and Yantai Jereh

Assuming the 90 days trading horizon China Petroleum is expected to generate 1.77 times less return on investment than Yantai Jereh. But when comparing it to its historical volatility, China Petroleum Chemical is 1.56 times less risky than Yantai Jereh. It trades about 0.03 of its potential returns per unit of risk. Yantai Jereh Oilfield is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,994  in Yantai Jereh Oilfield on October 5, 2024 and sell it today you would earn a total of  648.00  from holding Yantai Jereh Oilfield or generate 21.64% return on investment over 90 days.

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

China Petroleum Chemical  vs.  Yantai Jereh Oilfield

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.

Yantai Jereh Oilfield

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Yantai Jereh Oilfield are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Yantai Jereh is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Petroleum and Yantai Jereh

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

The idea behind China Petroleum Chemical and Yantai Jereh Oilfield 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.