Correlation Between Lutian Machinery and Changchun Faway

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

Diversification Opportunities for Lutian Machinery and Changchun Faway

0.54

Correlation Coefficient

Lutian Machinery  Changchun Faway

Very weak diversification

The 3 months correlation between Lutian and Changchun is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Lutian Machinery Co and Changchun Faway Automobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Changchun Faway Auto 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 Changchun Faway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Changchun Faway Auto has no effect on the direction of Lutian Machinery i.e., Lutian Machinery and Changchun Faway go up and down completely randomly.

Pair Corralation between Lutian Machinery and Changchun Faway

Assuming the 90 days trading horizon Lutian Machinery Co is expected to generate 1.09 times more return on investment than Changchun Faway. However, Lutian Machinery is 1.09 times more volatile than Changchun Faway Automobile. It trades about 0.02 of its potential returns per unit of risk. Changchun Faway Automobile is currently generating about -0.06 per unit of risk. If you would invest  1,598  in Lutian Machinery Co on December 3, 2024 and sell it today you would earn a total of  11.00  from holding Lutian Machinery Co or generate 0.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.31%
Values	Daily Returns

Lutian Machinery Co  vs.  Changchun Faway Automobile

Lutian Machinery

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lutian Machinery Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Changchun Faway Auto

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Lutian Machinery Co and Changchun Faway Automobile 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.