Correlation Between PetroChina Company and BP Plc

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

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

Diversification Opportunities for PetroChina Company and BP Plc

0.61

Correlation Coefficient

PetroChina Company  BP Plc

Poor diversification

The 3 months correlation between PetroChina and BSU is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Company Limited and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP plc and PetroChina Company 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 Company Limited are associated (or correlated) with BP Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP plc has no effect on the direction of PetroChina Company i.e., PetroChina Company and BP Plc go up and down completely randomly.

Pair Corralation between PetroChina Company and BP Plc

Assuming the 90 days horizon PetroChina Company Limited is expected to generate 1.29 times more return on investment than BP Plc. However, PetroChina Company is 1.29 times more volatile than BP plc. It trades about 0.24 of its potential returns per unit of risk. BP plc is currently generating about 0.03 per unit of risk. If you would invest  67.00  in PetroChina Company Limited on September 29, 2024 and sell it today you would earn a total of  6.00  from holding PetroChina Company Limited or generate 8.96% return on investment over 90 days.

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

PetroChina Company Limited  vs.  BP plc

PetroChina Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PetroChina Company Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, PetroChina Company is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

BP plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BP plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, BP Plc is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with PetroChina Company and BP Plc

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

The idea behind PetroChina Company Limited and BP plc 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.