Correlation Between China Petroleum and Chongqing Brewery

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

Diversification Opportunities for China Petroleum and Chongqing Brewery

0.68

Correlation Coefficient

China Petroleum  Chongqing Brewery

Poor diversification

The 3 months correlation between China and Chongqing is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding China Petroleum Chemical and Chongqing Brewery Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chongqing Brewery 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 Chongqing Brewery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chongqing Brewery has no effect on the direction of China Petroleum i.e., China Petroleum and Chongqing Brewery go up and down completely randomly.

Pair Corralation between China Petroleum and Chongqing Brewery

Assuming the 90 days trading horizon China Petroleum Chemical is expected to under-perform the Chongqing Brewery. But the stock apears to be less risky and, when comparing its historical volatility, China Petroleum Chemical is 1.66 times less risky than Chongqing Brewery. The stock trades about -0.29 of its potential returns per unit of risk. The Chongqing Brewery Co is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  6,420  in Chongqing Brewery Co on December 26, 2024 and sell it today you would lose (507.00) from holding Chongqing Brewery Co or give up 7.9% of portfolio value over 90 days.

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

China Petroleum Chemical  vs.  Chongqing Brewery Co

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.

Chongqing Brewery

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chongqing Brewery Co 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 Chongqing Brewery

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

The idea behind China Petroleum Chemical and Chongqing Brewery Co 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.