Correlation Between Masterwork Machinery and China High

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

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

Diversification Opportunities for Masterwork Machinery and China High

0.66

Correlation Coefficient

Masterwork Machinery  China High

Poor diversification

The 3 months correlation between Masterwork and China is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Masterwork Machinery and China High Speed Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China High Speed and Masterwork Machinery 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 Masterwork Machinery are associated (or correlated) with China High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China High Speed has no effect on the direction of Masterwork Machinery i.e., Masterwork Machinery and China High go up and down completely randomly.

Pair Corralation between Masterwork Machinery and China High

Assuming the 90 days trading horizon Masterwork Machinery is expected to generate 2.16 times less return on investment than China High. But when comparing it to its historical volatility, Masterwork Machinery is 1.05 times less risky than China High. It trades about 0.03 of its potential returns per unit of risk. China High Speed Railway is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  235.00  in China High Speed Railway on October 10, 2024 and sell it today you would earn a total of  31.00  from holding China High Speed Railway or generate 13.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Masterwork Machinery  vs.  China High Speed Railway

Masterwork Machinery

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Masterwork Machinery are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Masterwork Machinery may actually be approaching a critical reversion point that can send shares even higher in February 2025.

China High Speed

Risk-Adjusted Performance

5 of 100

Modest

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

Pair Trading with Masterwork Machinery and China High

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

The idea behind Masterwork Machinery and China High Speed Railway 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .