Correlation Between PetroChina and Henan Shenhuo

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

Diversification Opportunities for PetroChina and Henan Shenhuo

0.7

Correlation Coefficient

PetroChina  Henan Shenhuo

Poor diversification

The 3 months correlation between PetroChina and Henan is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Henan Shenhuo Coal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Henan Shenhuo Coal 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 Henan Shenhuo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Henan Shenhuo Coal has no effect on the direction of PetroChina i.e., PetroChina and Henan Shenhuo go up and down completely randomly.

Pair Corralation between PetroChina and Henan Shenhuo

Assuming the 90 days trading horizon PetroChina Co Ltd is expected to generate 0.71 times more return on investment than Henan Shenhuo. However, PetroChina Co Ltd is 1.42 times less risky than Henan Shenhuo. It trades about -0.04 of its potential returns per unit of risk. Henan Shenhuo Coal is currently generating about -0.05 per unit of risk. If you would invest  974.00  in PetroChina Co Ltd on September 19, 2024 and sell it today you would lose (126.00) from holding PetroChina Co Ltd or give up 12.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.18%
Values	Daily Returns

PetroChina Co Ltd  vs.  Henan Shenhuo Coal

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.

Henan Shenhuo Coal

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Henan Shenhuo Coal are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Henan Shenhuo sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PetroChina and Henan Shenhuo

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

The idea behind PetroChina Co Ltd and Henan Shenhuo Coal 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.