Correlation Between PetroChina and Western Securities

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

Diversification Opportunities for PetroChina and Western Securities

-0.1

Correlation Coefficient

PetroChina  Western Securities

Good diversification

The 3 months correlation between PetroChina and Western is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Western Securities Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Securities 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 Western Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Securities has no effect on the direction of PetroChina i.e., PetroChina and Western Securities go up and down completely randomly.

Pair Corralation between PetroChina and Western Securities

Assuming the 90 days trading horizon PetroChina Co Ltd is expected to under-perform the Western Securities. But the stock apears to be less risky and, when comparing its historical volatility, PetroChina Co Ltd is 1.62 times less risky than Western Securities. The stock trades about -0.14 of its potential returns per unit of risk. The Western Securities Co is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  849.00  in Western Securities Co on December 27, 2024 and sell it today you would lose (55.00) from holding Western Securities Co or give up 6.48% of portfolio value over 90 days.

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

PetroChina Co Ltd  vs.  Western Securities Co

PetroChina

Risk-Adjusted Performance

Very Weak

Over the last 90 days PetroChina Co Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Western Securities

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Securities Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Western Securities is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with PetroChina and Western Securities

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

The idea behind PetroChina Co Ltd and Western Securities 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.