Correlation Between Lutian Machinery and Kunshan Guoli

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

Diversification Opportunities for Lutian Machinery and Kunshan Guoli

0.43

Correlation Coefficient

Lutian Machinery  Kunshan Guoli

Very weak diversification

The 3 months correlation between Lutian and Kunshan is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Lutian Machinery Co and Kunshan Guoli Electronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kunshan Guoli Electronic 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 Kunshan Guoli. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kunshan Guoli Electronic has no effect on the direction of Lutian Machinery i.e., Lutian Machinery and Kunshan Guoli go up and down completely randomly.

Pair Corralation between Lutian Machinery and Kunshan Guoli

Assuming the 90 days trading horizon Lutian Machinery Co is expected to generate 0.74 times more return on investment than Kunshan Guoli. However, Lutian Machinery Co is 1.35 times less risky than Kunshan Guoli. It trades about -0.13 of its potential returns per unit of risk. Kunshan Guoli Electronic is currently generating about -0.27 per unit of risk. If you would invest  1,585  in Lutian Machinery Co on October 10, 2024 and sell it today you would lose (75.00) from holding Lutian Machinery Co or give up 4.73% of portfolio value over 90 days.

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

Lutian Machinery Co  vs.  Kunshan Guoli Electronic

Lutian Machinery

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lutian Machinery Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lutian Machinery may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Kunshan Guoli Electronic

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kunshan Guoli Electronic are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kunshan Guoli may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Lutian Machinery and Kunshan Guoli

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

The idea behind Lutian Machinery Co and Kunshan Guoli Electronic 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.