Correlation Between China Petroleum and Guangdong Liantai

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

Diversification Opportunities for China Petroleum and Guangdong Liantai

-0.19
  Correlation Coefficient

Good diversification

The 3 months correlation between China and Guangdong is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding China Petroleum Chemical and Guangdong Liantai Environmenta in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Liantai 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 Guangdong Liantai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Liantai has no effect on the direction of China Petroleum i.e., China Petroleum and Guangdong Liantai go up and down completely randomly.

Pair Corralation between China Petroleum and Guangdong Liantai

Assuming the 90 days trading horizon China Petroleum Chemical is expected to generate 0.81 times more return on investment than Guangdong Liantai. However, China Petroleum Chemical is 1.24 times less risky than Guangdong Liantai. It trades about 0.06 of its potential returns per unit of risk. Guangdong Liantai Environmental is currently generating about -0.02 per unit of risk. If you would invest  426.00  in China Petroleum Chemical on September 24, 2024 and sell it today you would earn a total of  212.00  from holding China Petroleum Chemical or generate 49.77% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

China Petroleum Chemical  vs.  Guangdong Liantai Environmenta

 Performance 
       Timeline  
China Petroleum Chemical 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.
Guangdong Liantai 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Liantai Environmental are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Liantai sustained solid returns over the last few months and may actually be approaching a breakup point.

China Petroleum and Guangdong Liantai Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with China Petroleum and Guangdong Liantai

The main advantage of trading using opposite China Petroleum and Guangdong Liantai positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Petroleum position performs unexpectedly, Guangdong Liantai 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 Guangdong Liantai will offset losses from the drop in Guangdong Liantai's long position.
The idea behind China Petroleum Chemical and Guangdong Liantai Environmental 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.

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