Correlation Between Allied Machinery and Masterwork Machinery

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Can any of the company-specific risk be diversified away by investing in both Allied Machinery 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 Allied Machinery and Masterwork 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 Masterwork Machinery, you can compare the effects of market volatilities on Allied Machinery 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 Allied Machinery with a short position of Masterwork Machinery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allied Machinery and Masterwork Machinery.

Diversification Opportunities for Allied Machinery and Masterwork Machinery

0.73
  Correlation Coefficient

Poor diversification

The 3 months correlation between Allied and Masterwork is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Allied Machinery Co and Masterwork Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Masterwork 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 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 Allied Machinery i.e., Allied Machinery and Masterwork Machinery go up and down completely randomly.

Pair Corralation between Allied Machinery and Masterwork Machinery

Assuming the 90 days trading horizon Allied Machinery Co is expected to under-perform the Masterwork Machinery. But the stock apears to be less risky and, when comparing its historical volatility, Allied Machinery Co is 1.18 times less risky than Masterwork Machinery. The stock trades about -0.01 of its potential returns per unit of risk. The Masterwork Machinery is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  548.00  in Masterwork Machinery on October 9, 2024 and sell it today you would lose (34.00) from holding Masterwork Machinery or give up 6.2% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Allied Machinery Co  vs.  Masterwork Machinery

 Performance 
       Timeline  
Allied Machinery 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Allied Machinery Co are ranked lower than 11 (%) 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.
Masterwork Machinery 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Very Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Masterwork Machinery are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Allied Machinery and Masterwork Machinery Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Allied Machinery and Masterwork Machinery

The main advantage of trading using opposite Allied Machinery and Masterwork Machinery positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allied Machinery 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 Allied Machinery Co 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.

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