Correlation Between HeNan Splendor and CNOOC

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

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

Diversification Opportunities for HeNan Splendor and CNOOC

0.16

Correlation Coefficient

HeNan Splendor  CNOOC

Average diversification

The 3 months correlation between HeNan and CNOOC is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding HeNan Splendor Science and CNOOC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNOOC Limited and HeNan Splendor 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 HeNan Splendor Science are associated (or correlated) with CNOOC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CNOOC Limited has no effect on the direction of HeNan Splendor i.e., HeNan Splendor and CNOOC go up and down completely randomly.

Pair Corralation between HeNan Splendor and CNOOC

Assuming the 90 days trading horizon HeNan Splendor Science is expected to generate 1.76 times more return on investment than CNOOC. However, HeNan Splendor is 1.76 times more volatile than CNOOC Limited. It trades about 0.23 of its potential returns per unit of risk. CNOOC Limited is currently generating about 0.06 per unit of risk. If you would invest  726.00  in HeNan Splendor Science on September 13, 2024 and sell it today you would earn a total of  423.00  from holding HeNan Splendor Science or generate 58.26% return on investment over 90 days.

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

HeNan Splendor Science  vs.  CNOOC Limited

HeNan Splendor Science

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HeNan Splendor Science are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HeNan Splendor sustained solid returns over the last few months and may actually be approaching a breakup point.

CNOOC Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CNOOC Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, CNOOC may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with HeNan Splendor and CNOOC

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

The idea behind HeNan Splendor Science and CNOOC 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.