Correlation Between China Petroleum and Jiangsu Financial

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

Diversification Opportunities for China Petroleum and Jiangsu Financial

-0.07

Correlation Coefficient

China Petroleum  Jiangsu Financial

Good diversification

The 3 months correlation between China and Jiangsu is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding China Petroleum Chemical and Jiangsu Financial Leasing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangsu Financial Leasing 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 Jiangsu Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangsu Financial Leasing has no effect on the direction of China Petroleum i.e., China Petroleum and Jiangsu Financial go up and down completely randomly.

Pair Corralation between China Petroleum and Jiangsu Financial

Assuming the 90 days trading horizon China Petroleum Chemical is expected to under-perform the Jiangsu Financial. But the stock apears to be less risky and, when comparing its historical volatility, China Petroleum Chemical is 1.34 times less risky than Jiangsu Financial. The stock trades about -0.02 of its potential returns per unit of risk. The Jiangsu Financial Leasing is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  451.00  in Jiangsu Financial Leasing on September 5, 2024 and sell it today you would earn a total of  64.00  from holding Jiangsu Financial Leasing or generate 14.19% 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.  Jiangsu Financial Leasing

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.

Jiangsu Financial Leasing

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Jiangsu Financial Leasing are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jiangsu Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Petroleum and Jiangsu Financial

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

The idea behind China Petroleum Chemical and Jiangsu Financial Leasing 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.