Correlation Between Lutian Machinery and Luolai Home

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

Diversification Opportunities for Lutian Machinery and Luolai Home

0.89
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Lutian and Luolai is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Lutian Machinery Co and Luolai Home Textile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Luolai Home Textile 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 Luolai Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Luolai Home Textile has no effect on the direction of Lutian Machinery i.e., Lutian Machinery and Luolai Home go up and down completely randomly.

Pair Corralation between Lutian Machinery and Luolai Home

Assuming the 90 days trading horizon Lutian Machinery Co is expected to generate 1.26 times more return on investment than Luolai Home. However, Lutian Machinery is 1.26 times more volatile than Luolai Home Textile. It trades about 0.0 of its potential returns per unit of risk. Luolai Home Textile is currently generating about -0.02 per unit of risk. If you would invest  1,699  in Lutian Machinery Co on September 12, 2024 and sell it today you would lose (130.00) from holding Lutian Machinery Co or give up 7.65% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Lutian Machinery Co  vs.  Luolai Home Textile

 Performance 
       Timeline  
Lutian Machinery 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Lutian Machinery Co are ranked lower than 12 (%) 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.
Luolai Home Textile 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Luolai Home Textile are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Luolai Home sustained solid returns over the last few months and may actually be approaching a breakup point.

Lutian Machinery and Luolai Home Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Lutian Machinery and Luolai Home

The main advantage of trading using opposite Lutian Machinery and Luolai Home positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lutian Machinery position performs unexpectedly, Luolai Home 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 Luolai Home will offset losses from the drop in Luolai Home's long position.
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The idea behind Lutian Machinery Co and Luolai Home Textile 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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