Correlation Between China Petroleum and Tonghua Grape

Can any of the company-specific risk be diversified away by investing in both China Petroleum and Tonghua Grape 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 Tonghua Grape 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 Tonghua Grape Wine, you can compare the effects of market volatilities on China Petroleum and Tonghua Grape 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 Tonghua Grape. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Petroleum and Tonghua Grape.

Diversification Opportunities for China Petroleum and Tonghua Grape

-0.57

Correlation Coefficient

China Petroleum  Tonghua Grape

Excellent diversification

The 3 months correlation between China and Tonghua is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding China Petroleum Chemical and Tonghua Grape Wine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tonghua Grape Wine 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 Tonghua Grape. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tonghua Grape Wine has no effect on the direction of China Petroleum i.e., China Petroleum and Tonghua Grape go up and down completely randomly.

Pair Corralation between China Petroleum and Tonghua Grape

Assuming the 90 days trading horizon China Petroleum Chemical is expected to under-perform the Tonghua Grape. But the stock apears to be less risky and, when comparing its historical volatility, China Petroleum Chemical is 1.38 times less risky than Tonghua Grape. The stock trades about -0.07 of its potential returns per unit of risk. The Tonghua Grape Wine is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  254.00  in Tonghua Grape Wine on September 1, 2024 and sell it today you would earn a total of  37.00  from holding Tonghua Grape Wine or generate 14.57% return on investment over 90 days.

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

China Petroleum Chemical  vs.  Tonghua Grape Wine

China Petroleum Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Petroleum Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Tonghua Grape Wine

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with China Petroleum and Tonghua Grape

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

The idea behind China Petroleum Chemical and Tonghua Grape Wine 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.