Correlation Between Gansu Jiu and Lutian Machinery

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

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

Diversification Opportunities for Gansu Jiu and Lutian Machinery

0.45

Correlation Coefficient

Gansu Jiu  Lutian Machinery

Very weak diversification

The 3 months correlation between Gansu and Lutian is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Gansu Jiu Steel and Lutian Machinery Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lutian Machinery and Gansu Jiu 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 Gansu Jiu Steel 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 Gansu Jiu i.e., Gansu Jiu and Lutian Machinery go up and down completely randomly.

Pair Corralation between Gansu Jiu and Lutian Machinery

Assuming the 90 days trading horizon Gansu Jiu Steel is expected to under-perform the Lutian Machinery. In addition to that, Gansu Jiu is 1.34 times more volatile than Lutian Machinery Co. It trades about -0.08 of its total potential returns per unit of risk. Lutian Machinery Co is currently generating about 0.0 per unit of volatility. If you would invest  1,568  in Lutian Machinery Co on November 20, 2024 and sell it today you would lose (13.00) from holding Lutian Machinery Co or give up 0.83% of portfolio value over 90 days.

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

Gansu Jiu Steel  vs.  Lutian Machinery Co

Gansu Jiu Steel

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gansu Jiu Steel 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

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 Gansu Jiu and Lutian Machinery

The main advantage of trading using opposite Gansu Jiu and Lutian Machinery positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gansu Jiu 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 Gansu Jiu Steel 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 Transaction History module to view history of all your transactions and understand their impact on performance.