Correlation Between Industrial and PetroChina

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

By analyzing existing cross correlation between Industrial and Commercial and PetroChina Co Ltd, you can compare the effects of market volatilities on Industrial and PetroChina 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 Industrial with a short position of PetroChina. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial and PetroChina.

Diversification Opportunities for Industrial and PetroChina

0.51

Correlation Coefficient

Industrial  PetroChina

Very weak diversification

The 3 months correlation between Industrial and PetroChina is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial and PetroChina Co Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetroChina and Industrial 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 Industrial and Commercial are associated (or correlated) with PetroChina. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PetroChina has no effect on the direction of Industrial i.e., Industrial and PetroChina go up and down completely randomly.

Pair Corralation between Industrial and PetroChina

Assuming the 90 days trading horizon Industrial and Commercial is expected to generate 0.89 times more return on investment than PetroChina. However, Industrial and Commercial is 1.13 times less risky than PetroChina. It trades about 0.17 of its potential returns per unit of risk. PetroChina Co Ltd is currently generating about 0.0 per unit of risk. If you would invest  615.00  in Industrial and Commercial on November 19, 2024 and sell it today you would earn a total of  81.00  from holding Industrial and Commercial or generate 13.17% return on investment over 90 days.

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

Industrial and Commercial  vs.  PetroChina Co Ltd

Industrial and Commercial

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

PetroChina

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Industrial and PetroChina

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

The idea behind Industrial and Commercial and PetroChina Co Ltd 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..