Correlation Between Postal Savings and CNOOC

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

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

Diversification Opportunities for Postal Savings and CNOOC

0.7

Correlation Coefficient

Postal Savings  CNOOC

Poor diversification

The 3 months correlation between Postal and CNOOC is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Postal Savings Bank and CNOOC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNOOC and Postal Savings 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 Postal Savings Bank 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 has no effect on the direction of Postal Savings i.e., Postal Savings and CNOOC go up and down completely randomly.

Pair Corralation between Postal Savings and CNOOC

Assuming the 90 days horizon Postal Savings is expected to generate 1.05 times less return on investment than CNOOC. In addition to that, Postal Savings is 1.24 times more volatile than CNOOC. It trades about 0.08 of its total potential returns per unit of risk. CNOOC is currently generating about 0.1 per unit of volatility. If you would invest  19.00  in CNOOC on September 13, 2024 and sell it today you would earn a total of  199.00  from holding CNOOC or generate 1047.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Postal Savings Bank  vs.  CNOOC

Postal Savings Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Postal Savings Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Postal Savings reported solid returns over the last few months and may actually be approaching a breakup point.

CNOOC

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CNOOC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, CNOOC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Postal Savings and CNOOC

The main advantage of trading using opposite Postal Savings and CNOOC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Postal Savings 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 Postal Savings Bank and CNOOC 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.