Correlation Between PetroChina and Guangzhou Automobile

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

Diversification Opportunities for PetroChina and Guangzhou Automobile

-0.14

Correlation Coefficient

PetroChina  Guangzhou Automobile

Good diversification

The 3 months correlation between PetroChina and Guangzhou is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Guangzhou Automobile Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Automobile 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 Guangzhou Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Automobile has no effect on the direction of PetroChina i.e., PetroChina and Guangzhou Automobile go up and down completely randomly.

Pair Corralation between PetroChina and Guangzhou Automobile

Assuming the 90 days trading horizon PetroChina Co Ltd is expected to under-perform the Guangzhou Automobile. But the stock apears to be less risky and, when comparing its historical volatility, PetroChina Co Ltd is 1.12 times less risky than Guangzhou Automobile. The stock trades about -0.05 of its potential returns per unit of risk. The Guangzhou Automobile Group is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  740.00  in Guangzhou Automobile Group on September 3, 2024 and sell it today you would earn a total of  144.00  from holding Guangzhou Automobile Group or generate 19.46% 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.  Guangzhou Automobile Group

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.

Guangzhou Automobile

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Automobile Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Automobile sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PetroChina and Guangzhou Automobile

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

The idea behind PetroChina Co Ltd and Guangzhou Automobile Group 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.