Correlation Between China Oilfield and Tenaris SA

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

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

Diversification Opportunities for China Oilfield and Tenaris SA

0.38

Correlation Coefficient

China Oilfield  Tenaris SA

Weak diversification

The 3 months correlation between China and Tenaris is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding China Oilfield Services and Tenaris SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tenaris SA and China Oilfield 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 Oilfield Services are associated (or correlated) with Tenaris SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tenaris SA has no effect on the direction of China Oilfield i.e., China Oilfield and Tenaris SA go up and down completely randomly.

Pair Corralation between China Oilfield and Tenaris SA

Assuming the 90 days horizon China Oilfield Services is expected to generate 0.65 times more return on investment than Tenaris SA. However, China Oilfield Services is 1.54 times less risky than Tenaris SA. It trades about -0.22 of its potential returns per unit of risk. Tenaris SA is currently generating about -0.28 per unit of risk. If you would invest  103.00  in China Oilfield Services on January 21, 2024 and sell it today you would lose (3.00) from holding China Oilfield Services or give up 2.91% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

China Oilfield Services  vs.  Tenaris SA

China Oilfield Services

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Oilfield Services are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent essential indicators, China Oilfield reported solid returns over the last few months and may actually be approaching a breakup point.

Tenaris SA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tenaris SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, Tenaris SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Oilfield and Tenaris SA

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

The idea behind China Oilfield Services and Tenaris SA 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.