Correlation Between PetroChina and China Petroleum

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

Diversification Opportunities for PetroChina and China Petroleum

0.76

Correlation Coefficient

PetroChina  China Petroleum

Poor diversification

The 3 months correlation between PetroChina and China is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and China Petroleum Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Petroleum Chemical 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 China Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Petroleum Chemical has no effect on the direction of PetroChina i.e., PetroChina and China Petroleum go up and down completely randomly.

Pair Corralation between PetroChina and China Petroleum

Assuming the 90 days horizon PetroChina Co Ltd is expected to under-perform the China Petroleum. But the pink sheet apears to be less risky and, when comparing its historical volatility, PetroChina Co Ltd is 1.4 times less risky than China Petroleum. The pink sheet trades about -0.02 of its potential returns per unit of risk. The China Petroleum Chemical is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  44.00  in China Petroleum Chemical on September 5, 2024 and sell it today you would earn a total of  6.00  from holding China Petroleum Chemical or generate 13.64% return on investment over 90 days.

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

PetroChina Co Ltd  vs.  China Petroleum Chemical

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 nearly stable basic indicators, PetroChina is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

China Petroleum Chemical

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Petroleum Chemical are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, China Petroleum reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PetroChina and China Petroleum

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

The idea behind PetroChina Co Ltd and China Petroleum Chemical 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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.