Correlation Between CNOOC and China Life

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

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

Diversification Opportunities for CNOOC and China Life

0.2

Correlation Coefficient

CNOOC  China Life

Modest diversification

The 3 months correlation between CNOOC and China is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding CNOOC Limited and China Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Life Insurance and CNOOC 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 CNOOC Limited are associated (or correlated) with China Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Life Insurance has no effect on the direction of CNOOC i.e., CNOOC and China Life go up and down completely randomly.

Pair Corralation between CNOOC and China Life

Assuming the 90 days trading horizon CNOOC Limited is expected to under-perform the China Life. But the stock apears to be less risky and, when comparing its historical volatility, CNOOC Limited is 1.4 times less risky than China Life. The stock trades about -0.04 of its potential returns per unit of risk. The China Life Insurance is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,417  in China Life Insurance on September 1, 2024 and sell it today you would earn a total of  793.00  from holding China Life Insurance or generate 23.21% return on investment over 90 days.

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

CNOOC Limited  vs.  China Life Insurance

CNOOC Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CNOOC Limited 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.

China Life Insurance

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Life Insurance are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Life sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CNOOC and China Life

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

The idea behind CNOOC Limited and China Life Insurance 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.