Correlation Between Lutian Machinery and Beijing Compass

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

Diversification Opportunities for Lutian Machinery and Beijing Compass

0.43

Correlation Coefficient

Lutian Machinery  Beijing Compass

Very weak diversification

The 3 months correlation between Lutian and Beijing is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Lutian Machinery Co and Beijing Compass Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Compass Tech 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 Beijing Compass. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Compass Tech has no effect on the direction of Lutian Machinery i.e., Lutian Machinery and Beijing Compass go up and down completely randomly.

Pair Corralation between Lutian Machinery and Beijing Compass

If you would invest (100.00) in Beijing Compass Technology on September 26, 2024 and sell it today you would earn a total of  100.00  from holding Beijing Compass Technology or generate -100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	0.0%
Values	Daily Returns

Lutian Machinery Co  vs.  Beijing Compass Technology

Lutian Machinery

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lutian Machinery Co are ranked lower than 8 (%) 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.

Beijing Compass Tech

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Beijing Compass Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, Beijing Compass sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lutian Machinery and Beijing Compass

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

The idea behind Lutian Machinery Co and Beijing Compass Technology 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.