Correlation Between American Balanced and Magna International
Can any of the company-specific risk be diversified away by investing in both American Balanced and Magna International 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 American Balanced and Magna International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Balanced and Magna International, you can compare the effects of market volatilities on American Balanced and Magna International 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 American Balanced with a short position of Magna International. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and Magna International.
Diversification Opportunities for American Balanced and Magna International
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between American and Magna is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced and Magna International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magna International and American Balanced 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 American Balanced are associated (or correlated) with Magna International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magna International has no effect on the direction of American Balanced i.e., American Balanced and Magna International go up and down completely randomly.
Pair Corralation between American Balanced and Magna International
Assuming the 90 days horizon American Balanced is expected to generate 1.18 times less return on investment than Magna International. But when comparing it to its historical volatility, American Balanced is 3.49 times less risky than Magna International. It trades about 0.07 of its potential returns per unit of risk. Magna International is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 5,708 in Magna International on October 24, 2024 and sell it today you would earn a total of 142.00 from holding Magna International or generate 2.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 98.78% |
| Values | Daily Returns |
American Balanced vs. Magna International
Performance |
| Timeline |
| American Balanced |
| Magna International |
American Balanced and Magna International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Balanced and Magna International
The main advantage of trading using opposite American Balanced and Magna International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced position performs unexpectedly, Magna International 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 Magna International will offset losses from the drop in Magna International's long position.| American Balanced vs. Income Fund Of | American Balanced vs. Capital Income Builder | American Balanced vs. Capital World Growth | American Balanced vs. Growth Fund Of |
| Magna International vs. Canadian National Railway | Magna International vs. Nutrien | Magna International vs. Restaurant Brands International | Magna International vs. Canadian Pacific Railway |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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