Correlation Between Lutian Machinery and Guangdong Liantai

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

Diversification Opportunities for Lutian Machinery and Guangdong Liantai

0.49

Correlation Coefficient

Lutian Machinery  Guangdong Liantai

Very weak diversification

The 3 months correlation between Lutian and Guangdong is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Lutian Machinery Co and Guangdong Liantai Environmenta in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Liantai 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 Guangdong Liantai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Liantai has no effect on the direction of Lutian Machinery i.e., Lutian Machinery and Guangdong Liantai go up and down completely randomly.

Pair Corralation between Lutian Machinery and Guangdong Liantai

Assuming the 90 days trading horizon Lutian Machinery Co is expected to generate 1.01 times more return on investment than Guangdong Liantai. However, Lutian Machinery is 1.01 times more volatile than Guangdong Liantai Environmental. It trades about 0.02 of its potential returns per unit of risk. Guangdong Liantai Environmental is currently generating about -0.01 per unit of risk. If you would invest  1,501  in Lutian Machinery Co on September 14, 2024 and sell it today you would earn a total of  86.00  from holding Lutian Machinery Co or generate 5.73% return on investment over 90 days.

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

Lutian Machinery Co  vs.  Guangdong Liantai Environmenta

Lutian Machinery

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lutian Machinery Co are ranked lower than 17 (%) 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.

Guangdong Liantai

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Liantai Environmental are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Liantai sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lutian Machinery and Guangdong Liantai

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

The idea behind Lutian Machinery Co and Guangdong Liantai Environmental 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.