Correlation Between PetroChina and Sinotrans

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

Diversification Opportunities for PetroChina and Sinotrans

0.63

Correlation Coefficient

PetroChina  Sinotrans

Poor diversification

The 3 months correlation between PetroChina and Sinotrans is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Sinotrans Ltd Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinotrans Class 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 Sinotrans. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinotrans Class has no effect on the direction of PetroChina i.e., PetroChina and Sinotrans go up and down completely randomly.

Pair Corralation between PetroChina and Sinotrans

Assuming the 90 days trading horizon PetroChina Co Ltd is expected to generate 0.94 times more return on investment than Sinotrans. However, PetroChina Co Ltd is 1.07 times less risky than Sinotrans. It trades about 0.04 of its potential returns per unit of risk. Sinotrans Ltd Class is currently generating about 0.04 per unit of risk. If you would invest  707.00  in PetroChina Co Ltd on September 23, 2024 and sell it today you would earn a total of  127.00  from holding PetroChina Co Ltd or generate 17.96% 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.  Sinotrans Ltd Class

PetroChina

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PetroChina Co Ltd are ranked lower than 3 (%) 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.

Sinotrans Class

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with PetroChina and Sinotrans

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

The idea behind PetroChina Co Ltd and Sinotrans Ltd Class 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.