Correlation Between Masterwork Machinery and Zhejiang Juhua

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

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

Diversification Opportunities for Masterwork Machinery and Zhejiang Juhua

0.82

Correlation Coefficient

Masterwork Machinery  Zhejiang Juhua

Very poor diversification

The 3 months correlation between Masterwork and Zhejiang is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Masterwork Machinery and Zhejiang Juhua Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhejiang Juhua and Masterwork 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 Masterwork Machinery are associated (or correlated) with Zhejiang Juhua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhejiang Juhua has no effect on the direction of Masterwork Machinery i.e., Masterwork Machinery and Zhejiang Juhua go up and down completely randomly.

Pair Corralation between Masterwork Machinery and Zhejiang Juhua

Assuming the 90 days trading horizon Masterwork Machinery is expected to generate 1.7 times more return on investment than Zhejiang Juhua. However, Masterwork Machinery is 1.7 times more volatile than Zhejiang Juhua Co. It trades about 0.15 of its potential returns per unit of risk. Zhejiang Juhua Co is currently generating about 0.17 per unit of risk. If you would invest  430.00  in Masterwork Machinery on September 24, 2024 and sell it today you would earn a total of  204.00  from holding Masterwork Machinery or generate 47.44% return on investment over 90 days.

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

Masterwork Machinery  vs.  Zhejiang Juhua Co

Masterwork Machinery

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Masterwork Machinery are ranked lower than 12 (%) 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.

Zhejiang Juhua

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Juhua Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhejiang Juhua sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Masterwork Machinery and Zhejiang Juhua

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

The idea behind Masterwork Machinery and Zhejiang Juhua Co 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.