Correlation Between Lutian Machinery and Tianjin Pengling

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

Diversification Opportunities for Lutian Machinery and Tianjin Pengling

0.79

Correlation Coefficient

Lutian Machinery  Tianjin Pengling

Poor diversification

The 3 months correlation between Lutian and Tianjin is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Lutian Machinery Co and Tianjin Pengling Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Pengling Rubber 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 Tianjin Pengling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Pengling Rubber has no effect on the direction of Lutian Machinery i.e., Lutian Machinery and Tianjin Pengling go up and down completely randomly.

Pair Corralation between Lutian Machinery and Tianjin Pengling

Assuming the 90 days trading horizon Lutian Machinery is expected to generate 1.94 times less return on investment than Tianjin Pengling. But when comparing it to its historical volatility, Lutian Machinery Co is 1.16 times less risky than Tianjin Pengling. It trades about 0.06 of its potential returns per unit of risk. Tianjin Pengling Rubber is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  476.00  in Tianjin Pengling Rubber on December 2, 2024 and sell it today you would earn a total of  15.00  from holding Tianjin Pengling Rubber or generate 3.15% return on investment over 90 days.

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

Lutian Machinery Co  vs.  Tianjin Pengling Rubber

Lutian Machinery

Risk-Adjusted Performance

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.

Tianjin Pengling Rubber

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tianjin Pengling Rubber has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Tianjin Pengling 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 Tianjin Pengling

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

The idea behind Lutian Machinery Co and Tianjin Pengling Rubber 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.