Correlation Between Lutian Machinery and China Fortune

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

Diversification Opportunities for Lutian Machinery and China Fortune

0.84

Correlation Coefficient

Lutian Machinery  China Fortune

Very poor diversification

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

Pair Corralation between Lutian Machinery and China Fortune

Assuming the 90 days trading horizon Lutian Machinery Co is expected to under-perform the China Fortune. But the stock apears to be less risky and, when comparing its historical volatility, Lutian Machinery Co is 3.02 times less risky than China Fortune. The stock trades about -0.01 of its potential returns per unit of risk. The China Fortune Land is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  165.00  in China Fortune Land on October 7, 2024 and sell it today you would earn a total of  85.00  from holding China Fortune Land or generate 51.52% return on investment over 90 days.

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

Lutian Machinery Co  vs.  China Fortune Land

Lutian Machinery

Risk-Adjusted Performance

0 of 100

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.

China Fortune Land

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Fortune Land are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Fortune sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lutian Machinery and China Fortune

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

The idea behind Lutian Machinery Co and China Fortune Land 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.