Correlation Between Masterwork Machinery and Long Yuan

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

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

Diversification Opportunities for Masterwork Machinery and Long Yuan

0.76

Correlation Coefficient

Masterwork Machinery  Long Yuan

Poor diversification

The 3 months correlation between Masterwork and Long is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Masterwork Machinery and Long Yuan Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Long Yuan Construction 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 Long Yuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Long Yuan Construction has no effect on the direction of Masterwork Machinery i.e., Masterwork Machinery and Long Yuan go up and down completely randomly.

Pair Corralation between Masterwork Machinery and Long Yuan

Assuming the 90 days trading horizon Masterwork Machinery is expected to generate 1.17 times more return on investment than Long Yuan. However, Masterwork Machinery is 1.17 times more volatile than Long Yuan Construction. It trades about 0.02 of its potential returns per unit of risk. Long Yuan Construction is currently generating about -0.02 per unit of risk. If you would invest  538.00  in Masterwork Machinery on October 4, 2024 and sell it today you would earn a total of  25.00  from holding Masterwork Machinery or generate 4.65% return on investment over 90 days.

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

Masterwork Machinery  vs.  Long Yuan Construction

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 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.

Long Yuan Construction

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Long Yuan Construction are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Long Yuan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Masterwork Machinery and Long Yuan

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

The idea behind Masterwork Machinery and Long Yuan Construction 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.