Correlation Between Eni SPA and China Petroleum

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

By analyzing existing cross correlation between Eni SpA ADR and China Petroleum Chemical, you can compare the effects of market volatilities on Eni SPA and China Petroleum 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 Eni SPA with a short position of China Petroleum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eni SPA and China Petroleum.

Diversification Opportunities for Eni SPA and China Petroleum

0.76

Correlation Coefficient

Eni SPA  China Petroleum

Poor diversification

The 3 months correlation between Eni and China is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Eni SpA ADR and China Petroleum Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Petroleum Chemical and Eni SPA 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 Eni SpA ADR are associated (or correlated) with China Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Petroleum Chemical has no effect on the direction of Eni SPA i.e., Eni SPA and China Petroleum go up and down completely randomly.

Pair Corralation between Eni SPA and China Petroleum

Taking into account the 90-day investment horizon Eni SpA ADR is expected to under-perform the China Petroleum. But the stock apears to be less risky and, when comparing its historical volatility, Eni SpA ADR is 6.65 times less risky than China Petroleum. The stock trades about -0.23 of its potential returns per unit of risk. The China Petroleum Chemical is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  53.00  in China Petroleum Chemical on September 15, 2024 and sell it today you would earn a total of  5.00  from holding China Petroleum Chemical or generate 9.43% return on investment over 90 days.

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

Eni SpA ADR  vs.  China Petroleum Chemical

Eni SpA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eni SpA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

China Petroleum Chemical

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Petroleum Chemical are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, China Petroleum is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Eni SPA and China Petroleum

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

The idea behind Eni SpA ADR and China Petroleum Chemical 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.