Correlation Between Allied Machinery and Jinlong Machinery

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

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

Diversification Opportunities for Allied Machinery and Jinlong Machinery

0.11

Correlation Coefficient

Allied Machinery  Jinlong Machinery

Average diversification

The 3 months correlation between Allied and Jinlong is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Allied Machinery Co and Jinlong Machinery Electronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jinlong Machinery and Allied Machinery 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 Allied Machinery Co are associated (or correlated) with Jinlong Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jinlong Machinery has no effect on the direction of Allied Machinery i.e., Allied Machinery and Jinlong Machinery go up and down completely randomly.

Pair Corralation between Allied Machinery and Jinlong Machinery

Assuming the 90 days trading horizon Allied Machinery Co is expected to generate 0.67 times more return on investment than Jinlong Machinery. However, Allied Machinery Co is 1.5 times less risky than Jinlong Machinery. It trades about 0.2 of its potential returns per unit of risk. Jinlong Machinery Electronic is currently generating about 0.05 per unit of risk. If you would invest  1,362  in Allied Machinery Co on October 11, 2024 and sell it today you would earn a total of  638.00  from holding Allied Machinery Co or generate 46.84% return on investment over 90 days.

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

Allied Machinery Co  vs.  Jinlong Machinery Electronic

Allied Machinery

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Machinery Co are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Allied Machinery sustained solid returns over the last few months and may actually be approaching a breakup point.

Jinlong Machinery

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Jinlong Machinery Electronic are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jinlong Machinery sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Allied Machinery and Jinlong Machinery

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

The idea behind Allied Machinery Co and Jinlong Machinery Electronic 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.