Correlation Between China State and PetroChina

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

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

Diversification Opportunities for China State and PetroChina

0.23

Correlation Coefficient

China State  PetroChina

Modest diversification

The 3 months correlation between China and PetroChina is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding China State Construction and PetroChina Co Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetroChina and China State 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 China State Construction 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 China State i.e., China State and PetroChina go up and down completely randomly.

Pair Corralation between China State and PetroChina

Assuming the 90 days trading horizon China State Construction is expected to generate 1.31 times more return on investment than PetroChina. However, China State is 1.31 times more volatile than PetroChina Co Ltd. It trades about 0.09 of its potential returns per unit of risk. PetroChina Co Ltd is currently generating about -0.07 per unit of risk. If you would invest  528.00  in China State Construction on September 2, 2024 and sell it today you would earn a total of  70.00  from holding China State Construction or generate 13.26% return on investment over 90 days.

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

China State Construction  vs.  PetroChina Co Ltd

China State Construction

Risk-Adjusted Performance

6 of 100

Modest

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

PetroChina

Risk-Adjusted Performance

0 of 100

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with China State and PetroChina

The main advantage of trading using opposite China State and PetroChina positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China State 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 China State Construction 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.

Check out your portfolio center.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.