Correlation Between Long Yuan and Sinomach General

Can any of the company-specific risk be diversified away by investing in both Long Yuan and Sinomach General 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 Sinomach General 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 Sinomach General Machinery, you can compare the effects of market volatilities on Long Yuan and Sinomach General 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 Sinomach General. Check out your portfolio center. Please also check ongoing floating volatility patterns of Long Yuan and Sinomach General.

Diversification Opportunities for Long Yuan and Sinomach General

0.95

Correlation Coefficient

Long Yuan  Sinomach General

Almost no diversification

The 3 months correlation between Long and Sinomach is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Long Yuan Construction and Sinomach General Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinomach General Mac 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 Sinomach General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinomach General Mac has no effect on the direction of Long Yuan i.e., Long Yuan and Sinomach General go up and down completely randomly.

Pair Corralation between Long Yuan and Sinomach General

Assuming the 90 days trading horizon Long Yuan is expected to generate 5.01 times less return on investment than Sinomach General. But when comparing it to its historical volatility, Long Yuan Construction is 1.13 times less risky than Sinomach General. It trades about 0.01 of its potential returns per unit of risk. Sinomach General Machinery is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,371  in Sinomach General Machinery on September 21, 2024 and sell it today you would earn a total of  252.00  from holding Sinomach General Machinery or generate 18.38% return on investment over 90 days.

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

Long Yuan Construction  vs.  Sinomach General Machinery

Long Yuan Construction

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Long Yuan Construction are ranked lower than 17 (%) 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.

Sinomach General Mac

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sinomach General Machinery are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sinomach General sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Long Yuan and Sinomach General

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

The idea behind Long Yuan Construction and Sinomach General 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..