Correlation Between Luzhou Lao and PetroChina

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

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

Diversification Opportunities for Luzhou Lao and PetroChina

0.12

Correlation Coefficient

Luzhou Lao  PetroChina

Average diversification

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

Pair Corralation between Luzhou Lao and PetroChina

Assuming the 90 days trading horizon Luzhou Lao Jiao is expected to under-perform the PetroChina. In addition to that, Luzhou Lao is 1.08 times more volatile than PetroChina Co Ltd. It trades about -0.12 of its total potential returns per unit of risk. PetroChina Co Ltd is currently generating about 0.31 per unit of volatility. If you would invest  803.00  in PetroChina Co Ltd on September 29, 2024 and sell it today you would earn a total of  89.00  from holding PetroChina Co Ltd or generate 11.08% return on investment over 90 days.

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

Luzhou Lao Jiao  vs.  PetroChina Co Ltd

Luzhou Lao Jiao

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Luzhou Lao Jiao has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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 somewhat strong basic indicators, PetroChina is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Luzhou Lao and PetroChina

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

The idea behind Luzhou Lao Jiao and PetroChina Co Ltd 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.