Correlation Between PetroChina and Linzhou Heavy

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

Diversification Opportunities for PetroChina and Linzhou Heavy

0.23

Correlation Coefficient

PetroChina  Linzhou Heavy

Modest diversification

The 3 months correlation between PetroChina and Linzhou is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Linzhou Heavy Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Linzhou 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 Linzhou Heavy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Linzhou Heavy Machinery has no effect on the direction of PetroChina i.e., PetroChina and Linzhou Heavy go up and down completely randomly.

Pair Corralation between PetroChina and Linzhou Heavy

Assuming the 90 days trading horizon PetroChina Co Ltd is expected to generate 0.46 times more return on investment than Linzhou Heavy. However, PetroChina Co Ltd is 2.19 times less risky than Linzhou Heavy. It trades about 0.28 of its potential returns per unit of risk. Linzhou Heavy Machinery is currently generating about 0.04 per unit of risk. If you would invest  803.00  in PetroChina Co Ltd on September 26, 2024 and sell it today you would earn a total of  75.00  from holding PetroChina Co Ltd or generate 9.34% return on investment over 90 days.

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

PetroChina Co Ltd  vs.  Linzhou 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 weak basic indicators, PetroChina may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Linzhou Heavy Machinery

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Linzhou Heavy Machinery are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Linzhou Heavy sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PetroChina and Linzhou Heavy

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

The idea behind PetroChina Co Ltd and Linzhou 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.

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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.