Correlation Between China Petroleum and Bank of Nanjing

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

Diversification Opportunities for China Petroleum and Bank of Nanjing

0.66
  Correlation Coefficient

Poor diversification

The 3 months correlation between China and Bank is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding China Petroleum Chemical and Bank of Nanjing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Nanjing 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 Bank of Nanjing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Nanjing has no effect on the direction of China Petroleum i.e., China Petroleum and Bank of Nanjing go up and down completely randomly.

Pair Corralation between China Petroleum and Bank of Nanjing

Assuming the 90 days trading horizon China Petroleum Chemical is expected to generate 1.01 times more return on investment than Bank of Nanjing. However, China Petroleum is 1.01 times more volatile than Bank of Nanjing. It trades about 0.18 of its potential returns per unit of risk. Bank of Nanjing is currently generating about 0.09 per unit of risk. If you would invest  629.00  in China Petroleum Chemical on September 20, 2024 and sell it today you would earn a total of  22.00  from holding China Petroleum Chemical or generate 3.5% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.65%
ValuesDaily Returns

China Petroleum Chemical  vs.  Bank of Nanjing

 Performance 
       Timeline  
China Petroleum Chemical 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in China Petroleum Chemical are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.
Bank of Nanjing 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Nanjing are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Bank of Nanjing is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

China Petroleum and Bank of Nanjing Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with China Petroleum and Bank of Nanjing

The main advantage of trading using opposite China Petroleum and Bank of Nanjing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Petroleum position performs unexpectedly, Bank of Nanjing 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 Bank of Nanjing will offset losses from the drop in Bank of Nanjing's long position.
The idea behind China Petroleum Chemical and Bank of Nanjing 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.

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