Correlation Between PetroChina and Weichai Heavy

Can any of the company-specific risk be diversified away by investing in both PetroChina and Weichai Heavy 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 Weichai Heavy 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 Weichai Heavy Machinery, you can compare the effects of market volatilities on PetroChina and Weichai Heavy 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 Weichai Heavy. Check out your portfolio center. Please also check ongoing floating volatility patterns of PetroChina and Weichai Heavy.

Diversification Opportunities for PetroChina and Weichai Heavy

0.03

Correlation Coefficient

PetroChina  Weichai Heavy

Significant diversification

The 3 months correlation between PetroChina and Weichai is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Weichai Heavy Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Weichai Heavy Machinery 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 Weichai Heavy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Weichai Heavy Machinery has no effect on the direction of PetroChina i.e., PetroChina and Weichai Heavy go up and down completely randomly.

Pair Corralation between PetroChina and Weichai Heavy

Assuming the 90 days trading horizon PetroChina Co Ltd is expected to under-perform the Weichai Heavy. But the stock apears to be less risky and, when comparing its historical volatility, PetroChina Co Ltd is 1.98 times less risky than Weichai Heavy. The stock trades about -0.05 of its potential returns per unit of risk. The Weichai Heavy Machinery is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  758.00  in Weichai Heavy Machinery on September 23, 2024 and sell it today you would earn a total of  551.00  from holding Weichai Heavy Machinery or generate 72.69% return on investment over 90 days.

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

PetroChina Co Ltd  vs.  Weichai Heavy Machinery

PetroChina

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PetroChina Co Ltd are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Weichai Heavy Machinery

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Weichai Heavy Machinery are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Weichai Heavy sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PetroChina and Weichai Heavy

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

The idea behind PetroChina Co Ltd and Weichai Heavy Machinery 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.