Correlation Between Xingguang Agricultural and Lutian Machinery

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

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

Diversification Opportunities for Xingguang Agricultural and Lutian Machinery

0.93

Correlation Coefficient

Xingguang Agricultural  Lutian Machinery

Almost no diversification

The 3 months correlation between Xingguang and Lutian is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Xingguang Agricultural Mach and Lutian Machinery Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lutian Machinery and Xingguang Agricultural 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 Xingguang Agricultural Mach are associated (or correlated) with Lutian Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lutian Machinery has no effect on the direction of Xingguang Agricultural i.e., Xingguang Agricultural and Lutian Machinery go up and down completely randomly.

Pair Corralation between Xingguang Agricultural and Lutian Machinery

Assuming the 90 days trading horizon Xingguang Agricultural Mach is expected to generate 1.29 times more return on investment than Lutian Machinery. However, Xingguang Agricultural is 1.29 times more volatile than Lutian Machinery Co. It trades about 0.26 of its potential returns per unit of risk. Lutian Machinery Co is currently generating about 0.17 per unit of risk. If you would invest  650.00  in Xingguang Agricultural Mach on September 12, 2024 and sell it today you would earn a total of  377.00  from holding Xingguang Agricultural Mach or generate 58.0% return on investment over 90 days.

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

Xingguang Agricultural Mach  vs.  Lutian Machinery Co

Xingguang Agricultural

Risk-Adjusted Performance

20 of 100

Solid

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

Lutian Machinery

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lutian Machinery Co are ranked lower than 13 (%) 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.

Pair Trading with Xingguang Agricultural and Lutian Machinery

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

The idea behind Xingguang Agricultural Mach and Lutian Machinery 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.