Correlation Between Halliburton and China Oilfield

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

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

Diversification Opportunities for Halliburton and China Oilfield

-0.08

Correlation Coefficient

Halliburton  China Oilfield

Good diversification

The 3 months correlation between Halliburton and China is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Halliburton and China Oilfield Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Oilfield Services and Halliburton 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 Halliburton are associated (or correlated) with China Oilfield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Oilfield Services has no effect on the direction of Halliburton i.e., Halliburton and China Oilfield go up and down completely randomly.

Pair Corralation between Halliburton and China Oilfield

Assuming the 90 days trading horizon Halliburton is expected to under-perform the China Oilfield. But the stock apears to be less risky and, when comparing its historical volatility, Halliburton is 1.52 times less risky than China Oilfield. The stock trades about -0.08 of its potential returns per unit of risk. The China Oilfield Services is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  78.00  in China Oilfield Services on September 28, 2024 and sell it today you would earn a total of  2.00  from holding China Oilfield Services or generate 2.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.06%
Values	Daily Returns

Halliburton  vs.  China Oilfield Services

Halliburton

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Halliburton has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Halliburton is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

China Oilfield Services

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days China Oilfield Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, China Oilfield is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Halliburton and China Oilfield

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

The idea behind Halliburton and China Oilfield Services 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.