Correlation Between China Petroleum and China State

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

Diversification Opportunities for China Petroleum and China State

-0.02

Correlation Coefficient

China Petroleum  China State

Good diversification

The 3 months correlation between China and China is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding China Petroleum Chemical and China State Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China State Construction 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 China State. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China State Construction has no effect on the direction of China Petroleum i.e., China Petroleum and China State go up and down completely randomly.

Pair Corralation between China Petroleum and China State

Assuming the 90 days trading horizon China Petroleum Chemical is expected to under-perform the China State. But the stock apears to be less risky and, when comparing its historical volatility, China Petroleum Chemical is 1.51 times less risky than China State. The stock trades about -0.07 of its potential returns per unit of risk. The China State Construction is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  528.00  in China State Construction on September 2, 2024 and sell it today you would earn a total of  70.00  from holding China State Construction or generate 13.26% 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.  China State Construction

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 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.

China State Construction

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China State Construction are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China State sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Petroleum and China State

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

The idea behind China Petroleum Chemical and China State Construction 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.