Correlation Between China Power and China Gas

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

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

Diversification Opportunities for China Power and China Gas

-0.03

Correlation Coefficient

China Power  China Gas

Good diversification

The 3 months correlation between China and China is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding China Power International and China Gas Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Gas Holdings and China Power 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 Power International are associated (or correlated) with China Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Gas Holdings has no effect on the direction of China Power i.e., China Power and China Gas go up and down completely randomly.

Pair Corralation between China Power and China Gas

Assuming the 90 days horizon China Power International is expected to under-perform the China Gas. But the pink sheet apears to be less risky and, when comparing its historical volatility, China Power International is 1.53 times less risky than China Gas. The pink sheet trades about -0.01 of its potential returns per unit of risk. The China Gas Holdings is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  99.00  in China Gas Holdings on January 24, 2024 and sell it today you would lose (6.00) from holding China Gas Holdings or give up 6.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.94%
Values	Daily Returns

China Power International  vs.  China Gas Holdings

China Power International

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Power International are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward indicators, China Power is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

China Gas Holdings

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Gas Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, China Gas is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with China Power and China Gas

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

The idea behind China Power International and China Gas Holdings 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.