Correlation Between China Petrochemical and First Copper

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

By analyzing existing cross correlation between China Petrochemical Development and First Copper Technology, you can compare the effects of market volatilities on China Petrochemical and First Copper 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 China Petrochemical with a short position of First Copper. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Petrochemical and First Copper.

Diversification Opportunities for China Petrochemical and First Copper

0.67

Correlation Coefficient

China Petrochemical  First Copper

Poor diversification

The 3 months correlation between China and First is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding China Petrochemical Developmen and First Copper Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Copper Technology and China Petrochemical 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 China Petrochemical Development are associated (or correlated) with First Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Copper Technology has no effect on the direction of China Petrochemical i.e., China Petrochemical and First Copper go up and down completely randomly.

Pair Corralation between China Petrochemical and First Copper

Assuming the 90 days trading horizon China Petrochemical Development is expected to under-perform the First Copper. But the stock apears to be less risky and, when comparing its historical volatility, China Petrochemical Development is 1.39 times less risky than First Copper. The stock trades about -0.18 of its potential returns per unit of risk. The First Copper Technology is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  4,100  in First Copper Technology on September 14, 2024 and sell it today you would lose (180.00) from holding First Copper Technology or give up 4.39% of portfolio value over 90 days.

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

China Petrochemical Developmen  vs.  First Copper Technology

China Petrochemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Petrochemical Development has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

First Copper Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Copper Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, First Copper is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with China Petrochemical and First Copper

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

The idea behind China Petrochemical Development and First Copper Technology 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.