Correlation Between CNOOC and China Enterprise

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

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

Diversification Opportunities for CNOOC and China Enterprise

0.23

Correlation Coefficient

CNOOC  China Enterprise

Modest diversification

The 3 months correlation between CNOOC and China is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding CNOOC Limited and China Enterprise Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Enterprise 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 China Enterprise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Enterprise has no effect on the direction of CNOOC i.e., CNOOC and China Enterprise go up and down completely randomly.

Pair Corralation between CNOOC and China Enterprise

Assuming the 90 days trading horizon CNOOC Limited is expected to generate 0.45 times more return on investment than China Enterprise. However, CNOOC Limited is 2.2 times less risky than China Enterprise. It trades about 0.25 of its potential returns per unit of risk. China Enterprise Co is currently generating about -0.02 per unit of risk. If you would invest  2,650  in CNOOC Limited on September 25, 2024 and sell it today you would earn a total of  195.00  from holding CNOOC Limited or generate 7.36% return on investment over 90 days.

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

CNOOC Limited  vs.  China Enterprise Co

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.

China Enterprise

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Enterprise Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Enterprise may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with CNOOC and China Enterprise

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

The idea behind CNOOC Limited and China Enterprise Co 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.