Correlation Between Jiangsu GDK and Masterwork Machinery

Can any of the company-specific risk be diversified away by investing in both Jiangsu GDK and Masterwork Machinery 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 Jiangsu GDK and Masterwork Machinery into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Jiangsu GDK Biotechnology and Masterwork Machinery, you can compare the effects of market volatilities on Jiangsu GDK and Masterwork Machinery 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 Jiangsu GDK with a short position of Masterwork Machinery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jiangsu GDK and Masterwork Machinery.

Diversification Opportunities for Jiangsu GDK and Masterwork Machinery

0.9

Correlation Coefficient

Jiangsu GDK  Masterwork Machinery

Almost no diversification

The 3 months correlation between Jiangsu and Masterwork is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Jiangsu GDK Biotechnology and Masterwork Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Masterwork Machinery and Jiangsu GDK 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 Jiangsu GDK Biotechnology are associated (or correlated) with Masterwork Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Masterwork Machinery has no effect on the direction of Jiangsu GDK i.e., Jiangsu GDK and Masterwork Machinery go up and down completely randomly.

Pair Corralation between Jiangsu GDK and Masterwork Machinery

Assuming the 90 days trading horizon Jiangsu GDK Biotechnology is expected to under-perform the Masterwork Machinery. In addition to that, Jiangsu GDK is 1.05 times more volatile than Masterwork Machinery. It trades about -0.25 of its total potential returns per unit of risk. Masterwork Machinery is currently generating about -0.11 per unit of volatility. If you would invest  645.00  in Masterwork Machinery on September 26, 2024 and sell it today you would lose (48.00) from holding Masterwork Machinery or give up 7.44% of portfolio value over 90 days.

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

Jiangsu GDK Biotechnology  vs.  Masterwork Machinery

Jiangsu GDK Biotechnology

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Jiangsu GDK Biotechnology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jiangsu GDK sustained solid returns over the last few months and may actually be approaching a breakup point.

Masterwork Machinery

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Masterwork Machinery are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Masterwork Machinery sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Jiangsu GDK and Masterwork Machinery

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

The idea behind Jiangsu GDK Biotechnology and Masterwork Machinery 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.