Correlation Between China Construction and Lutian Machinery

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

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

Diversification Opportunities for China Construction and Lutian Machinery

0.13

Correlation Coefficient

China Construction  Lutian Machinery

Average diversification

The 3 months correlation between China and Lutian is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and Lutian Machinery Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lutian Machinery and China Construction 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 China Construction Bank 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 China Construction i.e., China Construction and Lutian Machinery go up and down completely randomly.

Pair Corralation between China Construction and Lutian Machinery

Assuming the 90 days trading horizon China Construction Bank is expected to generate 0.57 times more return on investment than Lutian Machinery. However, China Construction Bank is 1.75 times less risky than Lutian Machinery. It trades about 0.09 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  666.00  in China Construction Bank on October 5, 2024 and sell it today you would earn a total of  193.00  from holding China Construction Bank or generate 28.98% return on investment over 90 days.

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

China Construction Bank  vs.  Lutian Machinery Co

China Construction Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Construction Bank are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Construction may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 China Construction and Lutian Machinery

The main advantage of trading using opposite China Construction and Lutian Machinery positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Construction 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 China Construction Bank 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.