Correlation Between China Petroleum and PetroChina

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

Diversification Opportunities for China Petroleum and PetroChina

0.74

Correlation Coefficient

China Petroleum  PetroChina

Poor diversification

The 3 months correlation between China and PetroChina is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding China Petroleum Chemical and PetroChina Co Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetroChina 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 PetroChina. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PetroChina has no effect on the direction of China Petroleum i.e., China Petroleum and PetroChina go up and down completely randomly.

Pair Corralation between China Petroleum and PetroChina

Assuming the 90 days trading horizon China Petroleum Chemical is expected to under-perform the PetroChina. But the stock apears to be less risky and, when comparing its historical volatility, China Petroleum Chemical is 1.4 times less risky than PetroChina. The stock trades about -0.16 of its potential returns per unit of risk. The PetroChina Co Ltd is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  803.00  in PetroChina Co Ltd on November 28, 2024 and sell it today you would lose (24.00) from holding PetroChina Co Ltd or give up 2.99% 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.  PetroChina Co Ltd

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 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.

PetroChina

Risk-Adjusted Performance

Very Weak

Over the last 90 days PetroChina Co Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, PetroChina is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Petroleum and PetroChina

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

The idea behind China Petroleum Chemical and PetroChina Co Ltd 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.