Correlation Between PetroChina and Luzhou Lao

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

By analyzing existing cross correlation between PetroChina Co Ltd and Luzhou Lao Jiao, you can compare the effects of market volatilities on PetroChina and Luzhou Lao 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 PetroChina with a short position of Luzhou Lao. Check out your portfolio center. Please also check ongoing floating volatility patterns of PetroChina and Luzhou Lao.

Diversification Opportunities for PetroChina and Luzhou Lao

0.5

Correlation Coefficient

PetroChina  Luzhou Lao

Very weak diversification

The 3 months correlation between PetroChina and Luzhou is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Luzhou Lao Jiao in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Luzhou Lao Jiao and PetroChina 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 PetroChina Co Ltd are associated (or correlated) with Luzhou Lao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Luzhou Lao Jiao has no effect on the direction of PetroChina i.e., PetroChina and Luzhou Lao go up and down completely randomly.

Pair Corralation between PetroChina and Luzhou Lao

Assuming the 90 days trading horizon PetroChina is expected to generate 5.19 times less return on investment than Luzhou Lao. But when comparing it to its historical volatility, PetroChina Co Ltd is 1.71 times less risky than Luzhou Lao. It trades about 0.04 of its potential returns per unit of risk. Luzhou Lao Jiao is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  10,235  in Luzhou Lao Jiao on September 23, 2024 and sell it today you would earn a total of  2,797  from holding Luzhou Lao Jiao or generate 27.33% return on investment over 90 days.

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

PetroChina Co Ltd  vs.  Luzhou Lao Jiao

PetroChina

Risk-Adjusted Performance

3 of 100

Insignificant

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

Luzhou Lao Jiao

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with PetroChina and Luzhou Lao

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

The idea behind PetroChina Co Ltd and Luzhou Lao Jiao 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.