Correlation Between PetroChina and Dongfeng Automobile

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

Diversification Opportunities for PetroChina and Dongfeng Automobile

-0.33

Correlation Coefficient

PetroChina  Dongfeng Automobile

Very good diversification

The 3 months correlation between PetroChina and Dongfeng is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Dongfeng Automobile Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongfeng Automobile 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 Dongfeng Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongfeng Automobile has no effect on the direction of PetroChina i.e., PetroChina and Dongfeng Automobile go up and down completely randomly.

Pair Corralation between PetroChina and Dongfeng Automobile

Assuming the 90 days trading horizon PetroChina Co Ltd is expected to under-perform the Dongfeng Automobile. But the stock apears to be less risky and, when comparing its historical volatility, PetroChina Co Ltd is 2.17 times less risky than Dongfeng Automobile. The stock trades about -0.02 of its potential returns per unit of risk. The Dongfeng Automobile Co is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  762.00  in Dongfeng Automobile Co on December 1, 2024 and sell it today you would lose (24.00) from holding Dongfeng Automobile Co or give up 3.15% 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.  Dongfeng Automobile 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 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.

Dongfeng Automobile

Risk-Adjusted Performance

Very Weak

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

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

The idea behind PetroChina Co Ltd and Dongfeng Automobile 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.