Correlation Between CNOOC and Shenzhen SDG

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

By analyzing existing cross correlation between CNOOC Limited and Shenzhen SDG Service, you can compare the effects of market volatilities on CNOOC and Shenzhen SDG 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 Shenzhen SDG. Check out your portfolio center. Please also check ongoing floating volatility patterns of CNOOC and Shenzhen SDG.

Diversification Opportunities for CNOOC and Shenzhen SDG

-0.56

Correlation Coefficient

CNOOC  Shenzhen SDG

Excellent diversification

The 3 months correlation between CNOOC and Shenzhen is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding CNOOC Limited and Shenzhen SDG Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen SDG Service 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 Shenzhen SDG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen SDG Service has no effect on the direction of CNOOC i.e., CNOOC and Shenzhen SDG go up and down completely randomly.

Pair Corralation between CNOOC and Shenzhen SDG

Assuming the 90 days trading horizon CNOOC is expected to generate 1.37 times less return on investment than Shenzhen SDG. But when comparing it to its historical volatility, CNOOC Limited is 2.44 times less risky than Shenzhen SDG. It trades about 0.08 of its potential returns per unit of risk. Shenzhen SDG Service is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,683  in Shenzhen SDG Service on October 13, 2024 and sell it today you would earn a total of  1,715  from holding Shenzhen SDG Service or generate 63.92% return on investment over 90 days.

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

CNOOC Limited  vs.  Shenzhen SDG Service

CNOOC Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CNOOC Limited has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Shenzhen SDG Service

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shenzhen SDG Service 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with CNOOC and Shenzhen SDG

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

The idea behind CNOOC Limited and Shenzhen SDG Service 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.