Correlation Between Sichuan Fulin and Masterwork Machinery

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

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

Diversification Opportunities for Sichuan Fulin and Masterwork Machinery

0.82

Correlation Coefficient

Sichuan Fulin  Masterwork Machinery

Very poor diversification

The 3 months correlation between Sichuan and Masterwork is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Fulin Transportation and Masterwork Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Masterwork Machinery and Sichuan Fulin 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 Sichuan Fulin Transportation 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 Sichuan Fulin i.e., Sichuan Fulin and Masterwork Machinery go up and down completely randomly.

Pair Corralation between Sichuan Fulin and Masterwork Machinery

Assuming the 90 days trading horizon Sichuan Fulin is expected to generate 1.71 times less return on investment than Masterwork Machinery. But when comparing it to its historical volatility, Sichuan Fulin Transportation is 1.27 times less risky than Masterwork Machinery. It trades about 0.05 of its potential returns per unit of risk. Masterwork Machinery is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  594.00  in Masterwork Machinery on December 27, 2024 and sell it today you would earn a total of  66.00  from holding Masterwork Machinery or generate 11.11% return on investment over 90 days.

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

Sichuan Fulin Transportation  vs.  Masterwork Machinery

Sichuan Fulin Transp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Fulin Transportation are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Fulin may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Masterwork Machinery

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Masterwork Machinery are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Masterwork Machinery sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sichuan Fulin and Masterwork Machinery

The main advantage of trading using opposite Sichuan Fulin and Masterwork Machinery positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sichuan Fulin 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 Sichuan Fulin Transportation 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.