Correlation Between Xinke Material and CNOOC

Can any of the company-specific risk be diversified away by investing in both Xinke Material and CNOOC 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 Xinke Material and CNOOC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Xinke Material and CNOOC Limited, you can compare the effects of market volatilities on Xinke Material and CNOOC 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 Xinke Material with a short position of CNOOC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xinke Material and CNOOC.

Diversification Opportunities for Xinke Material and CNOOC

0.05

Correlation Coefficient

Xinke Material  CNOOC

Significant diversification

The 3 months correlation between Xinke and CNOOC is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Xinke Material and CNOOC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNOOC Limited and Xinke Material 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 Xinke Material are associated (or correlated) with CNOOC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CNOOC Limited has no effect on the direction of Xinke Material i.e., Xinke Material and CNOOC go up and down completely randomly.

Pair Corralation between Xinke Material and CNOOC

Assuming the 90 days trading horizon Xinke Material is expected to generate 1.23 times less return on investment than CNOOC. In addition to that, Xinke Material is 1.35 times more volatile than CNOOC Limited. It trades about 0.05 of its total potential returns per unit of risk. CNOOC Limited is currently generating about 0.08 per unit of volatility. If you would invest  1,397  in CNOOC Limited on September 22, 2024 and sell it today you would earn a total of  1,343  from holding CNOOC Limited or generate 96.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

Xinke Material  vs.  CNOOC Limited

Xinke Material

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Xinke Material are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xinke Material sustained solid returns over the last few months and may actually be approaching a breakup point.

CNOOC Limited

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with Xinke Material and CNOOC

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

The idea behind Xinke Material and CNOOC Limited 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.