Correlation Between PetroChina and China Fortune

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

Diversification Opportunities for PetroChina and China Fortune

-0.05

Correlation Coefficient

PetroChina  China Fortune

Good diversification

The 3 months correlation between PetroChina and China is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and China Fortune Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Fortune Land 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 China Fortune. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Fortune Land has no effect on the direction of PetroChina i.e., PetroChina and China Fortune go up and down completely randomly.

Pair Corralation between PetroChina and China Fortune

Assuming the 90 days trading horizon PetroChina is expected to generate 111.72 times less return on investment than China Fortune. But when comparing it to its historical volatility, PetroChina Co Ltd is 3.29 times less risky than China Fortune. It trades about 0.01 of its potential returns per unit of risk. China Fortune Land is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  110.00  in China Fortune Land on September 24, 2024 and sell it today you would earn a total of  201.00  from holding China Fortune Land or generate 182.73% return on investment over 90 days.

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

PetroChina Co Ltd  vs.  China Fortune Land

PetroChina

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days PetroChina Co Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

China Fortune Land

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Fortune Land are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Fortune sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PetroChina and China Fortune

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

The idea behind PetroChina Co Ltd and China Fortune Land 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.