Correlation Between Sichuan Newsnet and Lutian Machinery

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

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

Diversification Opportunities for Sichuan Newsnet and Lutian Machinery

0.58

Correlation Coefficient

Sichuan Newsnet  Lutian Machinery

Very weak diversification

The 3 months correlation between Sichuan and Lutian is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Newsnet Media and Lutian Machinery Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lutian Machinery and Sichuan Newsnet 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 Newsnet Media are associated (or correlated) with Lutian Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lutian Machinery has no effect on the direction of Sichuan Newsnet i.e., Sichuan Newsnet and Lutian Machinery go up and down completely randomly.

Pair Corralation between Sichuan Newsnet and Lutian Machinery

Assuming the 90 days trading horizon Sichuan Newsnet Media is expected to generate 1.84 times more return on investment than Lutian Machinery. However, Sichuan Newsnet is 1.84 times more volatile than Lutian Machinery Co. It trades about 0.02 of its potential returns per unit of risk. Lutian Machinery Co is currently generating about 0.0 per unit of risk. If you would invest  1,502  in Sichuan Newsnet Media on October 4, 2024 and sell it today you would lose (86.00) from holding Sichuan Newsnet Media or give up 5.73% of portfolio value over 90 days.

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

Sichuan Newsnet Media  vs.  Lutian Machinery Co

Sichuan Newsnet Media

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sichuan Newsnet Media has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Lutian Machinery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lutian Machinery Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Lutian Machinery is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sichuan Newsnet and Lutian Machinery

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

The idea behind Sichuan Newsnet Media and Lutian Machinery Co 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.