Correlation Between PetroChina and Shandong Mining

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

Diversification Opportunities for PetroChina and Shandong Mining

0.08

Correlation Coefficient

PetroChina  Shandong Mining

Significant diversification

The 3 months correlation between PetroChina and Shandong is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Shandong Mining Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Mining 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 Shandong Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Mining Machinery has no effect on the direction of PetroChina i.e., PetroChina and Shandong Mining go up and down completely randomly.

Pair Corralation between PetroChina and Shandong Mining

Assuming the 90 days trading horizon PetroChina is expected to generate 8.9 times less return on investment than Shandong Mining. But when comparing it to its historical volatility, PetroChina Co Ltd is 2.33 times less risky than Shandong Mining. It trades about 0.09 of its potential returns per unit of risk. Shandong Mining Machinery is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  208.00  in Shandong Mining Machinery on September 13, 2024 and sell it today you would earn a total of  300.00  from holding Shandong Mining Machinery or generate 144.23% 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.  Shandong Mining Machinery

PetroChina

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PetroChina Co Ltd are ranked lower than 6 (%) 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.

Shandong Mining Machinery

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Mining Machinery are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Mining sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PetroChina and Shandong Mining

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

The idea behind PetroChina Co Ltd and Shandong Mining 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.