Correlation Between Nasdaq and China Petroleum

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

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

Diversification Opportunities for Nasdaq and China Petroleum

-0.81

Correlation Coefficient

Nasdaq  China Petroleum

Pay attention - limited upside

The 3 months correlation between Nasdaq and China is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc 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 Nasdaq 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 Nasdaq Inc 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 Nasdaq i.e., Nasdaq and China Petroleum go up and down completely randomly.

Pair Corralation between Nasdaq and China Petroleum

Given the investment horizon of 90 days Nasdaq is expected to generate 5.59 times less return on investment than China Petroleum. But when comparing it to its historical volatility, Nasdaq Inc is 5.93 times less risky than China Petroleum. It trades about 0.11 of its potential returns per unit of risk. China Petroleum Chemical is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  53.00  in China Petroleum Chemical on September 16, 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 Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Nasdaq Inc  vs.  China Petroleum Chemical

Nasdaq Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Nasdaq may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 Nasdaq and China Petroleum

The main advantage of trading using opposite Nasdaq and China Petroleum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq 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 Nasdaq Inc 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.