Correlation Between PetroChina and China National

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

Diversification Opportunities for PetroChina and China National

-0.59

Correlation Coefficient

PetroChina  China National

Excellent diversification

The 3 months correlation between PetroChina and China is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and China National Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China National Software 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 China National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China National Software has no effect on the direction of PetroChina i.e., PetroChina and China National go up and down completely randomly.

Pair Corralation between PetroChina and China National

Assuming the 90 days trading horizon PetroChina Co Ltd is expected to generate 0.58 times more return on investment than China National. However, PetroChina Co Ltd is 1.72 times less risky than China National. It trades about -0.04 of its potential returns per unit of risk. China National Software is currently generating about -0.19 per unit of risk. If you would invest  858.00  in PetroChina Co Ltd on October 24, 2024 and sell it today you would lose (13.00) from holding PetroChina Co Ltd or give up 1.52% of portfolio value over 90 days.

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

PetroChina Co Ltd  vs.  China National Software

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.

China National Software

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China National Software are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China National sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PetroChina and China National

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

The idea behind PetroChina Co Ltd and China National Software 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.