Correlation Between Long Yuan and Masterwork Machinery

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

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

Diversification Opportunities for Long Yuan and Masterwork Machinery

0.76

Correlation Coefficient

Long Yuan  Masterwork Machinery

Poor diversification

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

Pair Corralation between Long Yuan and Masterwork Machinery

Assuming the 90 days trading horizon Long Yuan Construction is expected to under-perform the Masterwork Machinery. But the stock apears to be less risky and, when comparing its historical volatility, Long Yuan Construction is 1.17 times less risky than Masterwork Machinery. The stock trades about -0.02 of its potential returns per unit of risk. The Masterwork Machinery is currently generating about 0.02 of returns per unit of risk over similar time horizon. 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

Long Yuan Construction  vs.  Masterwork Machinery

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.

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.

Pair Trading with Long Yuan and Masterwork Machinery

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

The idea behind Long Yuan Construction and Masterwork Machinery 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.