Correlation Between PetroChina and Penghua Shenzhen

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

Diversification Opportunities for PetroChina and Penghua Shenzhen

0.73

Correlation Coefficient

PetroChina  Penghua Shenzhen

Poor diversification

The 3 months correlation between PetroChina and Penghua is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Penghua Shenzhen Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penghua Shenzhen Energy 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 Penghua Shenzhen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Penghua Shenzhen Energy has no effect on the direction of PetroChina i.e., PetroChina and Penghua Shenzhen go up and down completely randomly.

Pair Corralation between PetroChina and Penghua Shenzhen

Assuming the 90 days trading horizon PetroChina Co Ltd is expected to generate 1.94 times more return on investment than Penghua Shenzhen. However, PetroChina is 1.94 times more volatile than Penghua Shenzhen Energy. It trades about 0.06 of its potential returns per unit of risk. Penghua Shenzhen Energy is currently generating about 0.01 per unit of risk. If you would invest  502.00  in PetroChina Co Ltd on October 25, 2024 and sell it today you would earn a total of  321.00  from holding PetroChina Co Ltd or generate 63.94% return on investment over 90 days.

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

PetroChina Co Ltd  vs.  Penghua Shenzhen Energy

PetroChina

Risk-Adjusted Performance

0 of 100

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 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.

Penghua Shenzhen Energy

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Penghua Shenzhen Energy are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Penghua Shenzhen 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 Penghua Shenzhen

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

The idea behind PetroChina Co Ltd and Penghua Shenzhen Energy 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.