Correlation Between PetroChina and Shanxi Lanhua

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

Diversification Opportunities for PetroChina and Shanxi Lanhua

0.85

Correlation Coefficient

PetroChina  Shanxi Lanhua

Very poor diversification

The 3 months correlation between PetroChina and Shanxi is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Shanxi Lanhua Sci Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanxi Lanhua Sci 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 Shanxi Lanhua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanxi Lanhua Sci has no effect on the direction of PetroChina i.e., PetroChina and Shanxi Lanhua go up and down completely randomly.

Pair Corralation between PetroChina and Shanxi Lanhua

Assuming the 90 days trading horizon PetroChina is expected to generate 2.16 times less return on investment than Shanxi Lanhua. But when comparing it to its historical volatility, PetroChina Co Ltd is 1.3 times less risky than Shanxi Lanhua. It trades about 0.05 of its potential returns per unit of risk. Shanxi Lanhua Sci Tech is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  779.00  in Shanxi Lanhua Sci Tech on September 15, 2024 and sell it today you would earn a total of  103.00  from holding Shanxi Lanhua Sci Tech or generate 13.22% return on investment over 90 days.

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

PetroChina Co Ltd  vs.  Shanxi Lanhua Sci Tech

PetroChina

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PetroChina Co Ltd are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, PetroChina may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Shanxi Lanhua Sci

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with PetroChina and Shanxi Lanhua

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

The idea behind PetroChina Co Ltd and Shanxi Lanhua Sci Tech 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..