Correlation Between Lutian Machinery and Masterwork Machinery

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

Diversification Opportunities for Lutian Machinery and Masterwork Machinery

0.85
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Lutian and Masterwork is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Lutian 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 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 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 Lutian Machinery i.e., Lutian Machinery and Masterwork Machinery go up and down completely randomly.

Pair Corralation between Lutian Machinery and Masterwork Machinery

Assuming the 90 days trading horizon Lutian Machinery Co is expected to generate 0.5 times more return on investment than Masterwork Machinery. However, Lutian Machinery Co is 1.99 times less risky than Masterwork Machinery. It trades about 0.01 of its potential returns per unit of risk. Masterwork Machinery is currently generating about 0.0 per unit of risk. If you would invest  1,516  in Lutian Machinery Co on October 4, 2024 and sell it today you would lose (1.00) from holding Lutian Machinery Co or give up 0.07% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Lutian Machinery Co  vs.  Masterwork Machinery

 Performance 
       Timeline  
Lutian Machinery 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.
Masterwork Machinery 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Masterwork Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Lutian Machinery and Masterwork Machinery Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Lutian Machinery and Masterwork Machinery

The main advantage of trading using opposite Lutian Machinery and Masterwork Machinery positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lutian 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 Lutian 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.

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