Correlation Between Lutian Machinery and Shanghai Putailai

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

Diversification Opportunities for Lutian Machinery and Shanghai Putailai

0.87

Correlation Coefficient

Lutian Machinery  Shanghai Putailai

Very poor diversification

The 3 months correlation between Lutian and Shanghai is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Lutian Machinery Co and Shanghai Putailai New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Putailai New 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 Shanghai Putailai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Putailai New has no effect on the direction of Lutian Machinery i.e., Lutian Machinery and Shanghai Putailai go up and down completely randomly.

Pair Corralation between Lutian Machinery and Shanghai Putailai

Assuming the 90 days trading horizon Lutian Machinery Co is expected to generate 0.73 times more return on investment than Shanghai Putailai. However, Lutian Machinery Co is 1.37 times less risky than Shanghai Putailai. It trades about 0.0 of its potential returns per unit of risk. Shanghai Putailai New is currently generating about -0.05 per unit of risk. If you would invest  1,722  in Lutian Machinery Co on October 4, 2024 and sell it today you would lose (207.00) from holding Lutian Machinery Co or give up 12.02% of portfolio value over 90 days.

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

Lutian Machinery Co  vs.  Shanghai Putailai New

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.

Shanghai Putailai New

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Lutian Machinery Co and Shanghai Putailai New 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.