Correlation Between PetroChina and Gansu Jiu

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

Diversification Opportunities for PetroChina and Gansu Jiu

-0.35

Correlation Coefficient

PetroChina  Gansu Jiu

Very good diversification

The 3 months correlation between PetroChina and Gansu is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Gansu Jiu Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gansu Jiu Steel 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 Gansu Jiu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gansu Jiu Steel has no effect on the direction of PetroChina i.e., PetroChina and Gansu Jiu go up and down completely randomly.

Pair Corralation between PetroChina and Gansu Jiu

Assuming the 90 days trading horizon PetroChina Co Ltd is expected to under-perform the Gansu Jiu. But the stock apears to be less risky and, when comparing its historical volatility, PetroChina Co Ltd is 1.74 times less risky than Gansu Jiu. The stock trades about -0.07 of its potential returns per unit of risk. The Gansu Jiu Steel is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  119.00  in Gansu Jiu Steel on August 31, 2024 and sell it today you would earn a total of  46.00  from holding Gansu Jiu Steel or generate 38.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.28%
Values	Daily Returns

PetroChina Co Ltd  vs.  Gansu Jiu Steel

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.

Gansu Jiu Steel

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gansu Jiu Steel are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gansu Jiu sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PetroChina and Gansu Jiu

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

The idea behind PetroChina Co Ltd and Gansu Jiu Steel 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.