Correlation Between China Oilfield and Hunting PLC

Can any of the company-specific risk be diversified away by investing in both China Oilfield and Hunting PLC 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 Hunting PLC 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 Hunting PLC, you can compare the effects of market volatilities on China Oilfield and Hunting PLC 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 Hunting PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Oilfield and Hunting PLC.

Diversification Opportunities for China Oilfield and Hunting PLC

0.63

Correlation Coefficient

China Oilfield  Hunting PLC

Poor diversification

The 3 months correlation between China and Hunting is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding China Oilfield Services and Hunting PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hunting PLC 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 Hunting PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hunting PLC has no effect on the direction of China Oilfield i.e., China Oilfield and Hunting PLC go up and down completely randomly.

Pair Corralation between China Oilfield and Hunting PLC

Assuming the 90 days horizon China Oilfield is expected to generate 1.23 times less return on investment than Hunting PLC. In addition to that, China Oilfield is 1.48 times more volatile than Hunting PLC. It trades about 0.09 of its total potential returns per unit of risk. Hunting PLC is currently generating about 0.17 per unit of volatility. If you would invest  373.00  in Hunting PLC on January 30, 2024 and sell it today you would earn a total of  65.00  from holding Hunting PLC or generate 17.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

China Oilfield Services  vs.  Hunting PLC

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.

Hunting PLC

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hunting PLC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent forward indicators, Hunting PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Oilfield and Hunting PLC

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

The idea behind China Oilfield Services and Hunting PLC 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.