Correlation Between Chevron and PetroChina Company

Can any of the company-specific risk be diversified away by investing in both Chevron and PetroChina Company 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 Chevron and PetroChina Company into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chevron and PetroChina Company Limited, you can compare the effects of market volatilities on Chevron and PetroChina Company 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 Chevron with a short position of PetroChina Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chevron and PetroChina Company.

Diversification Opportunities for Chevron and PetroChina Company

0.25

Correlation Coefficient

Chevron  PetroChina Company

Modest diversification

The 3 months correlation between Chevron and PetroChina is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Chevron and PetroChina Company Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetroChina Limited and Chevron 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 Chevron are associated (or correlated) with PetroChina Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PetroChina Limited has no effect on the direction of Chevron i.e., Chevron and PetroChina Company go up and down completely randomly.

Pair Corralation between Chevron and PetroChina Company

Assuming the 90 days trading horizon Chevron is expected to generate 2.28 times less return on investment than PetroChina Company. But when comparing it to its historical volatility, Chevron is 4.65 times less risky than PetroChina Company. It trades about 0.17 of its potential returns per unit of risk. PetroChina Company Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  53.00  in PetroChina Company Limited on September 2, 2024 and sell it today you would earn a total of  14.00  from holding PetroChina Company Limited or generate 26.42% return on investment over 90 days.

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

Chevron  vs.  PetroChina Company Limited

Chevron

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Chevron unveiled solid returns over the last few months and may actually be approaching a breakup point.

PetroChina Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PetroChina Company Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PetroChina Company reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chevron and PetroChina Company

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

The idea behind Chevron and PetroChina Company Limited 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.