Correlation Between PetroChina and Lushang Property

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

Diversification Opportunities for PetroChina and Lushang Property

0.69

Correlation Coefficient

PetroChina  Lushang Property

Poor diversification

The 3 months correlation between PetroChina and Lushang is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Lushang Property Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lushang Property 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 Lushang Property. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lushang Property has no effect on the direction of PetroChina i.e., PetroChina and Lushang Property go up and down completely randomly.

Pair Corralation between PetroChina and Lushang Property

Assuming the 90 days trading horizon PetroChina is expected to generate 1.96 times less return on investment than Lushang Property. But when comparing it to its historical volatility, PetroChina Co Ltd is 1.31 times less risky than Lushang Property. It trades about 0.14 of its potential returns per unit of risk. Lushang Property Co is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  686.00  in Lushang Property Co on September 24, 2024 and sell it today you would earn a total of  53.00  from holding Lushang Property Co or generate 7.73% 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.  Lushang Property 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.

Lushang Property

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lushang Property Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lushang Property sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PetroChina and Lushang Property

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

The idea behind PetroChina Co Ltd and Lushang Property 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.