Correlation Between Masterwork Machinery and Chongqing Road

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

By analyzing existing cross correlation between Masterwork Machinery and Chongqing Road Bridge, you can compare the effects of market volatilities on Masterwork Machinery and Chongqing Road 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 Chongqing Road. Check out your portfolio center. Please also check ongoing floating volatility patterns of Masterwork Machinery and Chongqing Road.

Diversification Opportunities for Masterwork Machinery and Chongqing Road

0.64

Correlation Coefficient

Masterwork Machinery  Chongqing Road

Poor diversification

The 3 months correlation between Masterwork and Chongqing is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Masterwork Machinery and Chongqing Road Bridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chongqing Road Bridge 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 Chongqing Road. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chongqing Road Bridge has no effect on the direction of Masterwork Machinery i.e., Masterwork Machinery and Chongqing Road go up and down completely randomly.

Pair Corralation between Masterwork Machinery and Chongqing Road

Assuming the 90 days trading horizon Masterwork Machinery is expected to generate 1.21 times more return on investment than Chongqing Road. However, Masterwork Machinery is 1.21 times more volatile than Chongqing Road Bridge. It trades about 0.02 of its potential returns per unit of risk. Chongqing Road Bridge is currently generating about -0.09 per unit of risk. If you would invest  563.00  in Masterwork Machinery on October 26, 2024 and sell it today you would lose (3.00) from holding Masterwork Machinery or give up 0.53% of portfolio value over 90 days.

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

Masterwork Machinery  vs.  Chongqing Road Bridge

Masterwork Machinery

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Masterwork Machinery are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Masterwork Machinery is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Chongqing Road Bridge

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chongqing Road Bridge 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.

Pair Trading with Masterwork Machinery and Chongqing Road

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

The idea behind Masterwork Machinery and Chongqing Road Bridge 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.