Correlation Between PetroChina and TongFu Microelectronics

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

Diversification Opportunities for PetroChina and TongFu Microelectronics

-0.32

Correlation Coefficient

PetroChina  TongFu Microelectronics

Very good diversification

The 3 months correlation between PetroChina and TongFu is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and TongFu Microelectronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TongFu Microelectronics 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 TongFu Microelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TongFu Microelectronics has no effect on the direction of PetroChina i.e., PetroChina and TongFu Microelectronics go up and down completely randomly.

Pair Corralation between PetroChina and TongFu Microelectronics

Assuming the 90 days trading horizon PetroChina is expected to generate 1.98 times less return on investment than TongFu Microelectronics. But when comparing it to its historical volatility, PetroChina Co Ltd is 3.08 times less risky than TongFu Microelectronics. It trades about 0.07 of its potential returns per unit of risk. TongFu Microelectronics Co is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,490  in TongFu Microelectronics Co on October 9, 2024 and sell it today you would earn a total of  152.00  from holding TongFu Microelectronics Co or generate 6.1% return on investment over 90 days.

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

PetroChina Co Ltd  vs.  TongFu Microelectronics Co

PetroChina

Risk-Adjusted Performance

5 of 100

Very Weak

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 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.

TongFu Microelectronics

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TongFu Microelectronics Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TongFu Microelectronics may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with PetroChina and TongFu Microelectronics

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

The idea behind PetroChina Co Ltd and TongFu Microelectronics Co 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.