Correlation Between PetroChina and Xinjiang Daqo

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

Diversification Opportunities for PetroChina and Xinjiang Daqo

0.12

Correlation Coefficient

PetroChina  Xinjiang Daqo

Average diversification

The 3 months correlation between PetroChina and Xinjiang is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Xinjiang Daqo New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xinjiang Daqo New 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 Daqo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xinjiang Daqo New has no effect on the direction of PetroChina i.e., PetroChina and Xinjiang Daqo go up and down completely randomly.

Pair Corralation between PetroChina and Xinjiang Daqo

Assuming the 90 days trading horizon PetroChina Co Ltd is expected to generate 0.74 times more return on investment than Xinjiang Daqo. However, PetroChina Co Ltd is 1.35 times less risky than Xinjiang Daqo. It trades about 0.07 of its potential returns per unit of risk. Xinjiang Daqo New is currently generating about -0.03 per unit of risk. If you would invest  484.00  in PetroChina Co Ltd on September 26, 2024 and sell it today you would earn a total of  394.00  from holding PetroChina Co Ltd or generate 81.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

PetroChina Co Ltd  vs.  Xinjiang Daqo New

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 weak basic indicators, PetroChina may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Xinjiang Daqo New

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Xinjiang Daqo New are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xinjiang Daqo sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PetroChina and Xinjiang Daqo

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

The idea behind PetroChina Co Ltd and Xinjiang Daqo New 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.