Correlation Between PetroChina and Power Construction

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

Diversification Opportunities for PetroChina and Power Construction

0.6

Correlation Coefficient

PetroChina  Power Construction

Poor diversification

The 3 months correlation between PetroChina and Power is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Power Construction Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Construction Corp 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 Power Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Construction Corp has no effect on the direction of PetroChina i.e., PetroChina and Power Construction go up and down completely randomly.

Pair Corralation between PetroChina and Power Construction

Assuming the 90 days trading horizon PetroChina Co Ltd is expected to under-perform the Power Construction. In addition to that, PetroChina is 1.03 times more volatile than Power Construction Corp. It trades about -0.15 of its total potential returns per unit of risk. Power Construction Corp is currently generating about -0.15 per unit of volatility. If you would invest  549.00  in Power Construction Corp on December 26, 2024 and sell it today you would lose (52.00) from holding Power Construction Corp or give up 9.47% of portfolio value over 90 days.

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

PetroChina Co Ltd  vs.  Power Construction Corp

PetroChina

Risk-Adjusted Performance

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Power Construction Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Power Construction Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with PetroChina and Power Construction

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

The idea behind PetroChina Co Ltd and Power Construction Corp 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.