Correlation Between Allied Machinery and Shanghai Lingyun

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

Diversification Opportunities for Allied Machinery and Shanghai Lingyun

-0.59

Correlation Coefficient

Allied Machinery  Shanghai Lingyun

Excellent diversification

The 3 months correlation between Allied and Shanghai is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Allied Machinery Co and Shanghai Lingyun Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Lingyun Ind 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 Shanghai Lingyun. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Lingyun Ind has no effect on the direction of Allied Machinery i.e., Allied Machinery and Shanghai Lingyun go up and down completely randomly.

Pair Corralation between Allied Machinery and Shanghai Lingyun

Assuming the 90 days trading horizon Allied Machinery Co is expected to generate 1.58 times more return on investment than Shanghai Lingyun. However, Allied Machinery is 1.58 times more volatile than Shanghai Lingyun Industries. It trades about 0.12 of its potential returns per unit of risk. Shanghai Lingyun Industries is currently generating about 0.0 per unit of risk. If you would invest  1,496  in Allied Machinery Co on December 25, 2024 and sell it today you would earn a total of  469.00  from holding Allied Machinery Co or generate 31.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.28%
Values	Daily Returns

Allied Machinery Co  vs.  Shanghai Lingyun Industries

Allied Machinery

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Machinery Co are ranked lower than 9 (%) 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.

Shanghai Lingyun Ind

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shanghai Lingyun Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shanghai Lingyun is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Allied Machinery and Shanghai Lingyun

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

The idea behind Allied Machinery Co and Shanghai Lingyun Industries 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.