Correlation Between Lutian Machinery and Gansu Huangtai

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

Diversification Opportunities for Lutian Machinery and Gansu Huangtai

0.93

Correlation Coefficient

Lutian Machinery  Gansu Huangtai

Almost no diversification

The 3 months correlation between Lutian and Gansu is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Lutian Machinery Co and Gansu Huangtai Wine marketing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gansu Huangtai Wine 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 Gansu Huangtai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gansu Huangtai Wine has no effect on the direction of Lutian Machinery i.e., Lutian Machinery and Gansu Huangtai go up and down completely randomly.

Pair Corralation between Lutian Machinery and Gansu Huangtai

Assuming the 90 days trading horizon Lutian Machinery is expected to generate 2.86 times less return on investment than Gansu Huangtai. But when comparing it to its historical volatility, Lutian Machinery Co is 2.02 times less risky than Gansu Huangtai. It trades about 0.16 of its potential returns per unit of risk. Gansu Huangtai Wine marketing is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  829.00  in Gansu Huangtai Wine marketing on September 2, 2024 and sell it today you would earn a total of  701.00  from holding Gansu Huangtai Wine marketing or generate 84.56% return on investment over 90 days.

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

Lutian Machinery Co  vs.  Gansu Huangtai Wine marketing

Lutian Machinery

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lutian Machinery Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lutian Machinery sustained solid returns over the last few months and may actually be approaching a breakup point.

Gansu Huangtai Wine

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gansu Huangtai Wine marketing are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gansu Huangtai sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lutian Machinery and Gansu Huangtai

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

The idea behind Lutian Machinery Co and Gansu Huangtai Wine marketing 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.