Correlation Between CNOOC and Jiangxi Hengda

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

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

Diversification Opportunities for CNOOC and Jiangxi Hengda

-0.09

Correlation Coefficient

CNOOC  Jiangxi Hengda

Good diversification

The 3 months correlation between CNOOC and Jiangxi is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding CNOOC Limited and Jiangxi Hengda Hi Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangxi Hengda Hi and CNOOC 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 CNOOC Limited are associated (or correlated) with Jiangxi Hengda. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangxi Hengda Hi has no effect on the direction of CNOOC i.e., CNOOC and Jiangxi Hengda go up and down completely randomly.

Pair Corralation between CNOOC and Jiangxi Hengda

Assuming the 90 days trading horizon CNOOC Limited is expected to generate 0.62 times more return on investment than Jiangxi Hengda. However, CNOOC Limited is 1.61 times less risky than Jiangxi Hengda. It trades about 0.09 of its potential returns per unit of risk. Jiangxi Hengda Hi Tech is currently generating about -0.02 per unit of risk. If you would invest  1,379  in CNOOC Limited on September 26, 2024 and sell it today you would earn a total of  1,496  from holding CNOOC Limited or generate 108.48% return on investment over 90 days.

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

CNOOC Limited  vs.  Jiangxi Hengda Hi Tech

CNOOC Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CNOOC Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, CNOOC may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Jiangxi Hengda Hi

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Jiangxi Hengda Hi Tech are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jiangxi Hengda sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CNOOC and Jiangxi Hengda

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

The idea behind CNOOC Limited and Jiangxi Hengda Hi Tech 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.