Correlation Between PetroChina and Guangdong Failong

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

Diversification Opportunities for PetroChina and Guangdong Failong

-0.6

Correlation Coefficient

PetroChina  Guangdong Failong

Excellent diversification

The 3 months correlation between PetroChina and Guangdong is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Guangdong Failong Crystal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Failong Crystal 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 Guangdong Failong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Failong Crystal has no effect on the direction of PetroChina i.e., PetroChina and Guangdong Failong go up and down completely randomly.

Pair Corralation between PetroChina and Guangdong Failong

Assuming the 90 days trading horizon PetroChina Co Ltd is expected to under-perform the Guangdong Failong. But the stock apears to be less risky and, when comparing its historical volatility, PetroChina Co Ltd is 2.55 times less risky than Guangdong Failong. The stock trades about -0.15 of its potential returns per unit of risk. The Guangdong Failong Crystal is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,282  in Guangdong Failong Crystal on December 28, 2024 and sell it today you would lose (16.00) from holding Guangdong Failong Crystal or give up 1.25% of portfolio value over 90 days.

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

PetroChina Co Ltd  vs.  Guangdong Failong Crystal

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.

Guangdong Failong Crystal

Risk-Adjusted Performance

Very Weak

Over the last 90 days Guangdong Failong Crystal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Guangdong Failong 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 Guangdong Failong

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

The idea behind PetroChina Co Ltd and Guangdong Failong Crystal 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.