Correlation Between PetroChina and Cambricon Technologies

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

Diversification Opportunities for PetroChina and Cambricon Technologies

-0.43

Correlation Coefficient

PetroChina  Cambricon Technologies

Very good diversification

The 3 months correlation between PetroChina and Cambricon is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Cambricon Technologies Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cambricon Technologies 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 Cambricon Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cambricon Technologies has no effect on the direction of PetroChina i.e., PetroChina and Cambricon Technologies go up and down completely randomly.

Pair Corralation between PetroChina and Cambricon Technologies

Assuming the 90 days trading horizon PetroChina Co Ltd is expected to under-perform the Cambricon Technologies. But the stock apears to be less risky and, when comparing its historical volatility, PetroChina Co Ltd is 4.35 times less risky than Cambricon Technologies. The stock trades about -0.14 of its potential returns per unit of risk. The Cambricon Technologies Corp is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  68,350  in Cambricon Technologies Corp on December 28, 2024 and sell it today you would lose (4,525) from holding Cambricon Technologies Corp or give up 6.62% of portfolio value over 90 days.

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

PetroChina Co Ltd  vs.  Cambricon Technologies 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.

Cambricon Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cambricon Technologies Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Cambricon Technologies is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with PetroChina and Cambricon Technologies

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

The idea behind PetroChina Co Ltd and Cambricon Technologies 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.

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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.