Correlation Between China Petroleum and Guangzhou Zhujiang

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

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

Diversification Opportunities for China Petroleum and Guangzhou Zhujiang

0.26

Correlation Coefficient

China Petroleum  Guangzhou Zhujiang

Modest diversification

The 3 months correlation between China and Guangzhou is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding China Petroleum Chemical and Guangzhou Zhujiang Brewery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Zhujiang and China Petroleum 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 Petroleum Chemical are associated (or correlated) with Guangzhou Zhujiang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Zhujiang has no effect on the direction of China Petroleum i.e., China Petroleum and Guangzhou Zhujiang go up and down completely randomly.

Pair Corralation between China Petroleum and Guangzhou Zhujiang

Assuming the 90 days trading horizon China Petroleum is expected to generate 2.45 times less return on investment than Guangzhou Zhujiang. But when comparing it to its historical volatility, China Petroleum Chemical is 1.32 times less risky than Guangzhou Zhujiang. It trades about 0.05 of its potential returns per unit of risk. Guangzhou Zhujiang Brewery is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  837.00  in Guangzhou Zhujiang Brewery on September 13, 2024 and sell it today you would earn a total of  91.00  from holding Guangzhou Zhujiang Brewery or generate 10.87% return on investment over 90 days.

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

China Petroleum Chemical  vs.  Guangzhou Zhujiang Brewery

China Petroleum Chemical

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Petroleum Chemical are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, China Petroleum is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Guangzhou Zhujiang

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Zhujiang Brewery are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Zhujiang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Petroleum and Guangzhou Zhujiang

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

The idea behind China Petroleum Chemical and Guangzhou Zhujiang Brewery 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.