Correlation Between Air New and Magna International
Can any of the company-specific risk be diversified away by investing in both Air New 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 Air New and Magna International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Air New Zealand and Magna International, you can compare the effects of market volatilities on Air New 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 Air New with a short position of Magna International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air New and Magna International.
Diversification Opportunities for Air New and Magna International
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Air and Magna is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Air New Zealand and Magna International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magna International and Air New 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 Air New Zealand 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 Air New i.e., Air New and Magna International go up and down completely randomly.
Pair Corralation between Air New and Magna International
Assuming the 90 days trading horizon Air New Zealand is expected to generate 2.94 times more return on investment than Magna International. However, Air New is 2.94 times more volatile than Magna International. It trades about 0.12 of its potential returns per unit of risk. Magna International is currently generating about -0.35 per unit of risk. If you would invest 31.00 in Air New Zealand on October 7, 2024 and sell it today you would earn a total of 2.00 from holding Air New Zealand or generate 6.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Air New Zealand vs. Magna International
Performance |
| Timeline |
| Air New Zealand |
| Magna International |
Air New and Magna International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Air New and Magna International
The main advantage of trading using opposite Air New and Magna International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air New 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.The idea behind Air New Zealand and Magna International 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.| Magna International vs. Hyrican Informationssysteme Aktiengesellschaft | Magna International vs. TERADATA | Magna International vs. DATA MODUL | Magna International vs. ELECTRONIC ARTS |
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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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