Correlation Between Xian International and Masterwork Machinery

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

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

Diversification Opportunities for Xian International and Masterwork Machinery

0.8

Correlation Coefficient

Xian International  Masterwork Machinery

Very poor diversification

The 3 months correlation between Xian and Masterwork is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Xian International Medical and Masterwork Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Masterwork Machinery and Xian International 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 Xian International Medical are associated (or correlated) with Masterwork Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Masterwork Machinery has no effect on the direction of Xian International i.e., Xian International and Masterwork Machinery go up and down completely randomly.

Pair Corralation between Xian International and Masterwork Machinery

Assuming the 90 days trading horizon Xian International Medical is expected to under-perform the Masterwork Machinery. But the stock apears to be less risky and, when comparing its historical volatility, Xian International Medical is 1.41 times less risky than Masterwork Machinery. The stock trades about -0.08 of its potential returns per unit of risk. The Masterwork Machinery is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  600.00  in Masterwork Machinery on October 8, 2024 and sell it today you would lose (81.00) from holding Masterwork Machinery or give up 13.5% of portfolio value over 90 days.

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

Xian International Medical  vs.  Masterwork Machinery

Xian International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xian International Medical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Masterwork Machinery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Masterwork Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Xian International and Masterwork Machinery

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

The idea behind Xian International Medical and Masterwork Machinery 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.