Correlation Between Cars and Magna International
Can any of the company-specific risk be diversified away by investing in both Cars 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 Cars and Magna International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cars Inc and Magna International, you can compare the effects of market volatilities on Cars 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 Cars with a short position of Magna International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cars and Magna International.
Diversification Opportunities for Cars and Magna International
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Cars and Magna is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and Magna International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magna International and Cars 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 Cars Inc 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 Cars i.e., Cars and Magna International go up and down completely randomly.
Pair Corralation between Cars and Magna International
Given the investment horizon of 90 days Cars Inc is expected to generate 1.14 times more return on investment than Magna International. However, Cars is 1.14 times more volatile than Magna International. It trades about 0.04 of its potential returns per unit of risk. Magna International is currently generating about -0.01 per unit of risk. If you would invest 1,443 in Cars Inc on August 27, 2024 and sell it today you would earn a total of 490.00 from holding Cars Inc or generate 33.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cars Inc vs. Magna International
Performance |
| Timeline |
| Cars Inc |
| Magna International |
Cars and Magna International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cars and Magna International
The main advantage of trading using opposite Cars and Magna International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cars 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 Cars Inc 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. Allison Transmission Holdings | Magna International vs. Aptiv PLC | Magna International vs. LKQ Corporation | Magna International vs. Lear Corporation |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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