Correlation Between PetroChina and Central China

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

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

Diversification Opportunities for PetroChina and Central China

0.67

Correlation Coefficient

PetroChina  Central China

Poor diversification

The 3 months correlation between PetroChina and Central is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Central China Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central China Land and PetroChina 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 PetroChina Co Ltd are associated (or correlated) with Central China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central China Land has no effect on the direction of PetroChina i.e., PetroChina and Central China go up and down completely randomly.

Pair Corralation between PetroChina and Central China

Assuming the 90 days trading horizon PetroChina Co Ltd is expected to generate 0.58 times more return on investment than Central China. However, PetroChina Co Ltd is 1.73 times less risky than Central China. It trades about 0.35 of its potential returns per unit of risk. Central China Land is currently generating about 0.14 per unit of risk. If you would invest  802.00  in PetroChina Co Ltd on September 27, 2024 and sell it today you would earn a total of  100.00  from holding PetroChina Co Ltd or generate 12.47% return on investment over 90 days.

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

PetroChina Co Ltd  vs.  Central China Land

PetroChina

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PetroChina Co Ltd are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, PetroChina may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Central China Land

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Central China Land are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Central China is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with PetroChina and Central China

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

The idea behind PetroChina Co Ltd and Central China Land 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.