Correlation Between PetroChina and Beijing Wantai

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

Diversification Opportunities for PetroChina and Beijing Wantai

0.29

Correlation Coefficient

PetroChina  Beijing Wantai

Modest diversification

The 3 months correlation between PetroChina and Beijing is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Beijing Wantai Biological in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Wantai Biological 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 Beijing Wantai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Wantai Biological has no effect on the direction of PetroChina i.e., PetroChina and Beijing Wantai go up and down completely randomly.

Pair Corralation between PetroChina and Beijing Wantai

Assuming the 90 days trading horizon PetroChina is expected to generate 2.51 times less return on investment than Beijing Wantai. But when comparing it to its historical volatility, PetroChina Co Ltd is 1.53 times less risky than Beijing Wantai. It trades about 0.03 of its potential returns per unit of risk. Beijing Wantai Biological is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4,855  in Beijing Wantai Biological on October 5, 2024 and sell it today you would earn a total of  2,213  from holding Beijing Wantai Biological or generate 45.58% 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.  Beijing Wantai Biological

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.

Beijing Wantai Biological

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Beijing Wantai Biological 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 Beijing Wantai

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

The idea behind PetroChina Co Ltd and Beijing Wantai Biological 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.