Correlation Between PetroChina and Shandong Himile

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

Diversification Opportunities for PetroChina and Shandong Himile

0.69

Correlation Coefficient

PetroChina  Shandong Himile

Poor diversification

The 3 months correlation between PetroChina and Shandong is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Shandong Himile Mechanical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Himile Mech 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 Himile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Himile Mech has no effect on the direction of PetroChina i.e., PetroChina and Shandong Himile go up and down completely randomly.

Pair Corralation between PetroChina and Shandong Himile

Assuming the 90 days trading horizon PetroChina is expected to generate 1.19 times less return on investment than Shandong Himile. In addition to that, PetroChina is 1.17 times more volatile than Shandong Himile Mechanical. It trades about 0.07 of its total potential returns per unit of risk. Shandong Himile Mechanical is currently generating about 0.1 per unit of volatility. If you would invest  2,457  in Shandong Himile Mechanical on October 11, 2024 and sell it today you would earn a total of  2,728  from holding Shandong Himile Mechanical or generate 111.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.79%
Values	Daily Returns

PetroChina Co Ltd  vs.  Shandong Himile Mechanical

PetroChina

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PetroChina Co Ltd are ranked lower than 4 (%) 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.

Shandong Himile Mech

Risk-Adjusted Performance

9 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Himile Mechanical are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Himile sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PetroChina and Shandong Himile

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

The idea behind PetroChina Co Ltd and Shandong Himile Mechanical 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.