Correlation Between PetroChina and Hainan Development

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

Diversification Opportunities for PetroChina and Hainan Development

-0.16

Correlation Coefficient

PetroChina  Hainan Development

Good diversification

The 3 months correlation between PetroChina and Hainan is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Hainan Development Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hainan Development 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 Hainan Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hainan Development has no effect on the direction of PetroChina i.e., PetroChina and Hainan Development go up and down completely randomly.

Pair Corralation between PetroChina and Hainan Development

Assuming the 90 days trading horizon PetroChina Co Ltd is expected to under-perform the Hainan Development. But the stock apears to be less risky and, when comparing its historical volatility, PetroChina Co Ltd is 1.74 times less risky than Hainan Development. The stock trades about -0.04 of its potential returns per unit of risk. The Hainan Development Holdings is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  737.00  in Hainan Development Holdings on October 12, 2024 and sell it today you would earn a total of  95.00  from holding Hainan Development Holdings or generate 12.89% 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.  Hainan Development Holdings

PetroChina

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PetroChina Co Ltd are ranked lower than 1 (%) 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.

Hainan Development

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with PetroChina and Hainan Development

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

The idea behind PetroChina Co Ltd and Hainan Development Holdings 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.