Correlation Between Masterwork Machinery and Zhongyin Babi

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

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

Diversification Opportunities for Masterwork Machinery and Zhongyin Babi

0.61

Correlation Coefficient

Masterwork Machinery  Zhongyin Babi

Poor diversification

The 3 months correlation between Masterwork and Zhongyin is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Masterwork Machinery and Zhongyin Babi Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhongyin Babi Food 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 Zhongyin Babi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhongyin Babi Food has no effect on the direction of Masterwork Machinery i.e., Masterwork Machinery and Zhongyin Babi go up and down completely randomly.

Pair Corralation between Masterwork Machinery and Zhongyin Babi

Assuming the 90 days trading horizon Masterwork Machinery is expected to generate 1.54 times more return on investment than Zhongyin Babi. However, Masterwork Machinery is 1.54 times more volatile than Zhongyin Babi Food. It trades about 0.0 of its potential returns per unit of risk. Zhongyin Babi Food is currently generating about -0.02 per unit of risk. If you would invest  648.00  in Masterwork Machinery on October 9, 2024 and sell it today you would lose (112.00) from holding Masterwork Machinery or give up 17.28% 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.  Zhongyin Babi Food

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.

Zhongyin Babi Food

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Zhongyin Babi Food are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhongyin Babi may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Masterwork Machinery and Zhongyin Babi

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

The idea behind Masterwork Machinery and Zhongyin Babi Food 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.