Correlation Between Lutian Machinery and Guangzhou Tinci

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

Diversification Opportunities for Lutian Machinery and Guangzhou Tinci

0.84

Correlation Coefficient

Lutian Machinery  Guangzhou Tinci

Very poor diversification

The 3 months correlation between Lutian and Guangzhou is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Lutian Machinery Co and Guangzhou Tinci Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Tinci Materials 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 Guangzhou Tinci. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Tinci Materials has no effect on the direction of Lutian Machinery i.e., Lutian Machinery and Guangzhou Tinci go up and down completely randomly.

Pair Corralation between Lutian Machinery and Guangzhou Tinci

Assuming the 90 days trading horizon Lutian Machinery Co is expected to generate 0.66 times more return on investment than Guangzhou Tinci. However, Lutian Machinery Co is 1.51 times less risky than Guangzhou Tinci. It trades about -0.01 of its potential returns per unit of risk. Guangzhou Tinci Materials is currently generating about -0.05 per unit of risk. If you would invest  1,752  in Lutian Machinery Co on October 11, 2024 and sell it today you would lose (248.00) from holding Lutian Machinery Co or give up 14.16% 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.  Guangzhou Tinci Materials

Lutian Machinery

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lutian Machinery Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lutian Machinery may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Guangzhou Tinci Materials

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Tinci Materials are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Tinci sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lutian Machinery and Guangzhou Tinci

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

The idea behind Lutian Machinery Co and Guangzhou Tinci Materials 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.