Correlation Between Lutian Machinery and Changshu Ruite

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

Diversification Opportunities for Lutian Machinery and Changshu Ruite

0.9

Correlation Coefficient

Lutian Machinery  Changshu Ruite

Almost no diversification

The 3 months correlation between Lutian and Changshu is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Lutian Machinery Co and Changshu Ruite Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Changshu Ruite Electric 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 Changshu Ruite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Changshu Ruite Electric has no effect on the direction of Lutian Machinery i.e., Lutian Machinery and Changshu Ruite go up and down completely randomly.

Pair Corralation between Lutian Machinery and Changshu Ruite

Assuming the 90 days trading horizon Lutian Machinery is expected to generate 1.32 times less return on investment than Changshu Ruite. But when comparing it to its historical volatility, Lutian Machinery Co is 1.33 times less risky than Changshu Ruite. It trades about 0.2 of its potential returns per unit of risk. Changshu Ruite Electric is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  565.00  in Changshu Ruite Electric on September 13, 2024 and sell it today you would earn a total of  234.00  from holding Changshu Ruite Electric or generate 41.42% 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.  Changshu Ruite Electric

Lutian Machinery

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lutian Machinery Co are ranked lower than 16 (%) 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.

Changshu Ruite Electric

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Changshu Ruite Electric are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Changshu Ruite sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lutian Machinery and Changshu Ruite

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

The idea behind Lutian Machinery Co and Changshu Ruite Electric 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.