Correlation Between PetroChina and Tsinghuatongfang

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

Diversification Opportunities for PetroChina and Tsinghuatongfang

-0.66

Correlation Coefficient

PetroChina  Tsinghuatongfang

Excellent diversification

The 3 months correlation between PetroChina and Tsinghuatongfang is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Tsinghuatongfang Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tsinghuatongfang 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 Tsinghuatongfang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tsinghuatongfang has no effect on the direction of PetroChina i.e., PetroChina and Tsinghuatongfang go up and down completely randomly.

Pair Corralation between PetroChina and Tsinghuatongfang

Assuming the 90 days trading horizon PetroChina is expected to generate 10.17 times less return on investment than Tsinghuatongfang. But when comparing it to its historical volatility, PetroChina Co Ltd is 1.8 times less risky than Tsinghuatongfang. It trades about 0.02 of its potential returns per unit of risk. Tsinghuatongfang Co is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  527.00  in Tsinghuatongfang Co on October 24, 2024 and sell it today you would earn a total of  132.00  from holding Tsinghuatongfang Co or generate 25.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.77%
Values	Daily Returns

PetroChina Co Ltd  vs.  Tsinghuatongfang Co

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.

Tsinghuatongfang

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tsinghuatongfang Co 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.

Pair Trading with PetroChina and Tsinghuatongfang

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

The idea behind PetroChina Co Ltd and Tsinghuatongfang 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.

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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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.