Correlation Between Enbridge and PetroChina Company

Can any of the company-specific risk be diversified away by investing in both Enbridge and PetroChina Company 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 Enbridge and PetroChina Company into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Enbridge and PetroChina Company Limited, you can compare the effects of market volatilities on Enbridge and PetroChina Company 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 Enbridge with a short position of PetroChina Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Enbridge and PetroChina Company.

Diversification Opportunities for Enbridge and PetroChina Company

0.15

Correlation Coefficient

Enbridge  PetroChina Company

Average diversification

The 3 months correlation between Enbridge and PetroChina is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Enbridge and PetroChina Company Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetroChina Limited and Enbridge 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 Enbridge are associated (or correlated) with PetroChina Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PetroChina Limited has no effect on the direction of Enbridge i.e., Enbridge and PetroChina Company go up and down completely randomly.

Pair Corralation between Enbridge and PetroChina Company

Assuming the 90 days horizon Enbridge is expected to generate 1.55 times less return on investment than PetroChina Company. But when comparing it to its historical volatility, Enbridge is 1.36 times less risky than PetroChina Company. It trades about 0.3 of its potential returns per unit of risk. PetroChina Company Limited is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  69.00  in PetroChina Company Limited on October 17, 2024 and sell it today you would earn a total of  8.00  from holding PetroChina Company Limited or generate 11.59% return on investment over 90 days.

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

Enbridge  vs.  PetroChina Company Limited

Enbridge

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Enbridge reported solid returns over the last few months and may actually be approaching a breakup point.

PetroChina Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PetroChina Company Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, PetroChina Company may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Enbridge and PetroChina Company

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

The idea behind Enbridge and PetroChina Company Limited 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.