Correlation Between China Petroleum and PetroChina

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

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

Diversification Opportunities for China Petroleum and PetroChina

0.83

Correlation Coefficient

China Petroleum  PetroChina

Very poor diversification

The 3 months correlation between China and PetroChina is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding China Petroleum Chemical and PetroChina Co Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetroChina and China Petroleum 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 China Petroleum Chemical are associated (or correlated) with PetroChina. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PetroChina has no effect on the direction of China Petroleum i.e., China Petroleum and PetroChina go up and down completely randomly.

Pair Corralation between China Petroleum and PetroChina

Assuming the 90 days horizon China Petroleum is expected to generate 2.47 times less return on investment than PetroChina. But when comparing it to its historical volatility, China Petroleum Chemical is 1.1 times less risky than PetroChina. It trades about 0.02 of its potential returns per unit of risk. PetroChina Co Ltd is currently generating about 0.04 of returns per unit of risk over similar time horizon. 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

China Petroleum Chemical  vs.  PetroChina Co Ltd

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.

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.

Pair Trading with China Petroleum and PetroChina

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

The idea behind China Petroleum Chemical and PetroChina Co Ltd 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.