Correlation Between PetroChina and Inner Mongolia

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

Diversification Opportunities for PetroChina and Inner Mongolia

0.34

Correlation Coefficient

PetroChina  Inner Mongolia

Weak diversification

The 3 months correlation between PetroChina and Inner is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Inner Mongolia Furui in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inner Mongolia Furui 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 Inner Mongolia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inner Mongolia Furui has no effect on the direction of PetroChina i.e., PetroChina and Inner Mongolia go up and down completely randomly.

Pair Corralation between PetroChina and Inner Mongolia

Assuming the 90 days trading horizon PetroChina Co Ltd is expected to under-perform the Inner Mongolia. But the stock apears to be less risky and, when comparing its historical volatility, PetroChina Co Ltd is 2.18 times less risky than Inner Mongolia. The stock trades about -0.05 of its potential returns per unit of risk. The Inner Mongolia Furui is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3,954  in Inner Mongolia Furui on September 3, 2024 and sell it today you would lose (172.00) from holding Inner Mongolia Furui or give up 4.35% of portfolio value over 90 days.

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

PetroChina Co Ltd  vs.  Inner Mongolia Furui

PetroChina

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PetroChina Co Ltd 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.

Inner Mongolia Furui

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inner Mongolia Furui has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Inner Mongolia is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with PetroChina and Inner Mongolia

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

The idea behind PetroChina Co Ltd and Inner Mongolia Furui 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.