Correlation Between Equinor ASA and China Petroleum

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

By analyzing existing cross correlation between Equinor ASA and China Petroleum Chemical, you can compare the effects of market volatilities on Equinor ASA 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 Equinor ASA with a short position of China Petroleum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equinor ASA and China Petroleum.

Diversification Opportunities for Equinor ASA and China Petroleum

0.25

Correlation Coefficient

Equinor ASA  China Petroleum

Modest diversification

The 3 months correlation between Equinor and China is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Equinor ASA 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 Equinor ASA 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 Equinor ASA 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 Equinor ASA i.e., Equinor ASA and China Petroleum go up and down completely randomly.

Pair Corralation between Equinor ASA and China Petroleum

Assuming the 90 days horizon Equinor ASA is expected to generate 0.62 times more return on investment than China Petroleum. However, Equinor ASA is 1.6 times less risky than China Petroleum. It trades about 0.02 of its potential returns per unit of risk. China Petroleum Chemical is currently generating about -0.01 per unit of risk. If you would invest  2,271  in Equinor ASA on November 28, 2024 and sell it today you would earn a total of  7.00  from holding Equinor ASA or generate 0.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	90.48%
Values	Daily Returns

Equinor ASA  vs.  China Petroleum Chemical

Equinor ASA

Risk-Adjusted Performance

Very Weak

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

China Petroleum Chemical

Risk-Adjusted Performance

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 fragile primary indicators, China Petroleum reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Equinor ASA and China Petroleum

The main advantage of trading using opposite Equinor ASA and China Petroleum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equinor ASA 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 Equinor ASA 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.