Correlation Between Lutian Machinery and Xinjiang Tianrun

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

Diversification Opportunities for Lutian Machinery and Xinjiang Tianrun

0.98

Correlation Coefficient

Lutian Machinery  Xinjiang Tianrun

Almost no diversification

The 3 months correlation between Lutian and Xinjiang is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Lutian Machinery Co and Xinjiang Tianrun Dairy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xinjiang Tianrun Dairy 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 Xinjiang Tianrun. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xinjiang Tianrun Dairy has no effect on the direction of Lutian Machinery i.e., Lutian Machinery and Xinjiang Tianrun go up and down completely randomly.

Pair Corralation between Lutian Machinery and Xinjiang Tianrun

Assuming the 90 days trading horizon Lutian Machinery is expected to generate 1.38 times less return on investment than Xinjiang Tianrun. But when comparing it to its historical volatility, Lutian Machinery Co is 1.13 times less risky than Xinjiang Tianrun. It trades about 0.16 of its potential returns per unit of risk. Xinjiang Tianrun Dairy is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  727.00  in Xinjiang Tianrun Dairy on August 31, 2024 and sell it today you would earn a total of  241.00  from holding Xinjiang Tianrun Dairy or generate 33.15% 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.  Xinjiang Tianrun Dairy

Lutian Machinery

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lutian Machinery Co are ranked lower than 12 (%) 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.

Xinjiang Tianrun Dairy

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xinjiang Tianrun Dairy are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xinjiang Tianrun sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lutian Machinery and Xinjiang Tianrun

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

The idea behind Lutian Machinery Co and Xinjiang Tianrun Dairy 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..