Correlation Between PetroChina and Liuzhou Iron

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

Diversification Opportunities for PetroChina and Liuzhou Iron

-0.38

Correlation Coefficient

PetroChina  Liuzhou Iron

Very good diversification

The 3 months correlation between PetroChina and Liuzhou is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Liuzhou Iron Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liuzhou Iron Steel 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 Liuzhou Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liuzhou Iron Steel has no effect on the direction of PetroChina i.e., PetroChina and Liuzhou Iron go up and down completely randomly.

Pair Corralation between PetroChina and Liuzhou Iron

Assuming the 90 days trading horizon PetroChina Co Ltd is expected to generate 0.75 times more return on investment than Liuzhou Iron. However, PetroChina Co Ltd is 1.34 times less risky than Liuzhou Iron. It trades about -0.04 of its potential returns per unit of risk. Liuzhou Iron Steel is currently generating about -0.12 per unit of risk. If you would invest  934.00  in PetroChina Co Ltd on October 8, 2024 and sell it today you would lose (49.00) from holding PetroChina Co Ltd or give up 5.25% 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.  Liuzhou Iron Steel

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.

Liuzhou Iron Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Liuzhou Iron Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with PetroChina and Liuzhou Iron

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

The idea behind PetroChina Co Ltd and Liuzhou Iron Steel 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.