Correlation Between PetroChina and China Petroleum

Can any of the company-specific risk be diversified away by investing in both PetroChina 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 PetroChina and China Petroleum 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 China Petroleum Chemical, you can compare the effects of market volatilities on PetroChina 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 PetroChina with a short position of China Petroleum. Check out your portfolio center. Please also check ongoing floating volatility patterns of PetroChina and China Petroleum.

Diversification Opportunities for PetroChina and China Petroleum

0.83

Correlation Coefficient

PetroChina  China Petroleum

Very poor diversification

The 3 months correlation between PetroChina and China is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd 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 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 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 PetroChina i.e., PetroChina and China Petroleum go up and down completely randomly.

Pair Corralation between PetroChina and China Petroleum

Assuming the 90 days horizon PetroChina Co Ltd is expected to generate 1.1 times more return on investment than China Petroleum. However, PetroChina is 1.1 times more volatile than China Petroleum Chemical. It trades about 0.04 of its potential returns per unit of risk. China Petroleum Chemical is currently generating about 0.02 per unit of risk. If you would invest  70.00  in PetroChina Co Ltd on September 15, 2024 and sell it today you would earn a total of  4.00  from holding PetroChina Co Ltd or generate 5.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

PetroChina Co Ltd  vs.  China Petroleum Chemical

PetroChina

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PetroChina Co Ltd are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PetroChina 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 PetroChina and China Petroleum

The main advantage of trading using opposite PetroChina and China Petroleum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PetroChina 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 PetroChina Co Ltd 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.