Correlation Between PetroChina and Nanxing Furniture

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

Diversification Opportunities for PetroChina and Nanxing Furniture

0.03

Correlation Coefficient

PetroChina  Nanxing Furniture

Significant diversification

The 3 months correlation between PetroChina and Nanxing is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Nanxing Furniture Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nanxing Furniture 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 Nanxing Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nanxing Furniture has no effect on the direction of PetroChina i.e., PetroChina and Nanxing Furniture go up and down completely randomly.

Pair Corralation between PetroChina and Nanxing Furniture

Assuming the 90 days trading horizon PetroChina is expected to generate 1.04 times less return on investment than Nanxing Furniture. But when comparing it to its historical volatility, PetroChina Co Ltd is 1.53 times less risky than Nanxing Furniture. It trades about 0.07 of its potential returns per unit of risk. Nanxing Furniture Machinery is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,024  in Nanxing Furniture Machinery on September 23, 2024 and sell it today you would earn a total of  555.00  from holding Nanxing Furniture Machinery or generate 54.2% 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.  Nanxing Furniture 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 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.

Nanxing Furniture

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nanxing Furniture Machinery are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nanxing Furniture sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PetroChina and Nanxing Furniture

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

The idea behind PetroChina Co Ltd and Nanxing Furniture 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.