Correlation Between China Petroleum and Offshore Oil

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

Diversification Opportunities for China Petroleum and Offshore Oil

0.14

Correlation Coefficient

China Petroleum  Offshore Oil

Average diversification

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

Pair Corralation between China Petroleum and Offshore Oil

Assuming the 90 days trading horizon China Petroleum Chemical is expected to generate 0.9 times more return on investment than Offshore Oil. However, China Petroleum Chemical is 1.11 times less risky than Offshore Oil. It trades about 0.03 of its potential returns per unit of risk. Offshore Oil Engineering is currently generating about -0.03 per unit of risk. If you would invest  622.00  in China Petroleum Chemical on October 8, 2024 and sell it today you would earn a total of  35.00  from holding China Petroleum Chemical or generate 5.63% return on investment over 90 days.

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

China Petroleum Chemical  vs.  Offshore Oil Engineering

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.

Offshore Oil Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Offshore Oil Engineering 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 Offshore Oil

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

The idea behind China Petroleum Chemical and Offshore Oil Engineering 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.