Correlation Between Offshore Oil and Sichuan Changhong

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

By analyzing existing cross correlation between Offshore Oil Engineering and Sichuan Changhong Electric, you can compare the effects of market volatilities on Offshore Oil and Sichuan Changhong 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 Offshore Oil with a short position of Sichuan Changhong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Offshore Oil and Sichuan Changhong.

Diversification Opportunities for Offshore Oil and Sichuan Changhong

0.47

Correlation Coefficient

Offshore Oil  Sichuan Changhong

Very weak diversification

The 3 months correlation between Offshore and Sichuan is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Offshore Oil Engineering and Sichuan Changhong Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Changhong and Offshore Oil 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 Offshore Oil Engineering are associated (or correlated) with Sichuan Changhong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Changhong has no effect on the direction of Offshore Oil i.e., Offshore Oil and Sichuan Changhong go up and down completely randomly.

Pair Corralation between Offshore Oil and Sichuan Changhong

Assuming the 90 days trading horizon Offshore Oil Engineering is expected to under-perform the Sichuan Changhong. But the stock apears to be less risky and, when comparing its historical volatility, Offshore Oil Engineering is 1.79 times less risky than Sichuan Changhong. The stock trades about -0.01 of its potential returns per unit of risk. The Sichuan Changhong Electric is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  283.00  in Sichuan Changhong Electric on October 22, 2024 and sell it today you would earn a total of  618.00  from holding Sichuan Changhong Electric or generate 218.37% return on investment over 90 days.

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

Offshore Oil Engineering  vs.  Sichuan Changhong Electric

Offshore Oil Engineering

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Offshore Oil Engineering are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Offshore Oil is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sichuan Changhong

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Offshore Oil and Sichuan Changhong

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

The idea behind Offshore Oil Engineering and Sichuan Changhong Electric 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.