Correlation Between Lutian Machinery and Jilin Chemical

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

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

Diversification Opportunities for Lutian Machinery and Jilin Chemical

0.86

Correlation Coefficient

Lutian Machinery  Jilin Chemical

Very poor diversification

The 3 months correlation between Lutian and Jilin is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Lutian Machinery Co and Jilin Chemical Fibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jilin Chemical Fibre and Lutian 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 Lutian Machinery Co are associated (or correlated) with Jilin Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jilin Chemical Fibre has no effect on the direction of Lutian Machinery i.e., Lutian Machinery and Jilin Chemical go up and down completely randomly.

Pair Corralation between Lutian Machinery and Jilin Chemical

Assuming the 90 days trading horizon Lutian Machinery Co is expected to generate 0.47 times more return on investment than Jilin Chemical. However, Lutian Machinery Co is 2.11 times less risky than Jilin Chemical. It trades about -0.12 of its potential returns per unit of risk. Jilin Chemical Fibre is currently generating about -0.1 per unit of risk. If you would invest  1,586  in Lutian Machinery Co on October 3, 2024 and sell it today you would lose (71.00) from holding Lutian Machinery Co or give up 4.48% of portfolio value over 90 days.

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

Lutian Machinery Co  vs.  Jilin Chemical Fibre

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.

Jilin Chemical Fibre

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Jilin Chemical Fibre are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Jilin Chemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lutian Machinery and Jilin Chemical

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

The idea behind Lutian Machinery Co and Jilin Chemical Fibre 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.