Correlation Between PetroChina and Xinjiang Baodi

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

Diversification Opportunities for PetroChina and Xinjiang Baodi

0.2

Correlation Coefficient

PetroChina  Xinjiang Baodi

Modest diversification

The 3 months correlation between PetroChina and Xinjiang is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Xinjiang Baodi Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xinjiang Baodi Mining 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 Xinjiang Baodi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xinjiang Baodi Mining has no effect on the direction of PetroChina i.e., PetroChina and Xinjiang Baodi go up and down completely randomly.

Pair Corralation between PetroChina and Xinjiang Baodi

Assuming the 90 days trading horizon PetroChina is expected to generate 3.66 times less return on investment than Xinjiang Baodi. But when comparing it to its historical volatility, PetroChina Co Ltd is 1.79 times less risky than Xinjiang Baodi. It trades about 0.05 of its potential returns per unit of risk. Xinjiang Baodi Mining is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  609.00  in Xinjiang Baodi Mining on September 25, 2024 and sell it today you would earn a total of  53.00  from holding Xinjiang Baodi Mining or generate 8.7% 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.  Xinjiang Baodi Mining

PetroChina

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PetroChina Co Ltd are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Xinjiang Baodi Mining

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xinjiang Baodi Mining are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xinjiang Baodi sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PetroChina and Xinjiang Baodi

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

The idea behind PetroChina Co Ltd and Xinjiang Baodi Mining 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.