Correlation Between China Petroleum and Sanxiang Advanced

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

Diversification Opportunities for China Petroleum and Sanxiang Advanced

-0.85

Correlation Coefficient

China Petroleum  Sanxiang Advanced

Pay attention - limited upside

The 3 months correlation between China and Sanxiang is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding China Petroleum Chemical and Sanxiang Advanced Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sanxiang Advanced 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 Sanxiang Advanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sanxiang Advanced has no effect on the direction of China Petroleum i.e., China Petroleum and Sanxiang Advanced go up and down completely randomly.

Pair Corralation between China Petroleum and Sanxiang Advanced

Assuming the 90 days trading horizon China Petroleum Chemical is expected to under-perform the Sanxiang Advanced. But the stock apears to be less risky and, when comparing its historical volatility, China Petroleum Chemical is 4.28 times less risky than Sanxiang Advanced. The stock trades about -0.33 of its potential returns per unit of risk. The Sanxiang Advanced Materials is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,600  in Sanxiang Advanced Materials on December 25, 2024 and sell it today you would earn a total of  702.00  from holding Sanxiang Advanced Materials or generate 43.88% return on investment over 90 days.

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

China Petroleum Chemical  vs.  Sanxiang Advanced Materials

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Sanxiang Advanced

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sanxiang Advanced Materials are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sanxiang Advanced sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Petroleum and Sanxiang Advanced

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

The idea behind China Petroleum Chemical and Sanxiang Advanced Materials 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.