Correlation Between PetroChina and China Aluminum

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

Diversification Opportunities for PetroChina and China Aluminum

0.22

Correlation Coefficient

PetroChina  China Aluminum

Modest diversification

The 3 months correlation between PetroChina and China is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and China Aluminum International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Aluminum Inter 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 Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Aluminum Inter has no effect on the direction of PetroChina i.e., PetroChina and China Aluminum go up and down completely randomly.

Pair Corralation between PetroChina and China Aluminum

Assuming the 90 days trading horizon PetroChina Co Ltd is expected to generate 0.79 times more return on investment than China Aluminum. However, PetroChina Co Ltd is 1.26 times less risky than China Aluminum. It trades about 0.22 of its potential returns per unit of risk. China Aluminum International is currently generating about -0.07 per unit of risk. If you would invest  800.00  in PetroChina Co Ltd on September 13, 2024 and sell it today you would earn a total of  45.00  from holding PetroChina Co Ltd or generate 5.62% return on investment over 90 days.

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

PetroChina Co Ltd  vs.  China Aluminum International

PetroChina

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PetroChina Co Ltd are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, PetroChina may actually be approaching a critical reversion point that can send shares even higher in January 2025.

China Aluminum Inter

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Aluminum International are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Aluminum sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PetroChina and China Aluminum

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

The idea behind PetroChina Co Ltd and China Aluminum International 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 Transaction History module to view history of all your transactions and understand their impact on performance.