Correlation Between Lear and Adient PLC
Can any of the company-specific risk be diversified away by investing in both Lear and Adient PLC 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 Lear and Adient PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lear Corporation and Adient PLC, you can compare the effects of market volatilities on Lear and Adient PLC 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 Lear with a short position of Adient PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lear and Adient PLC.
Diversification Opportunities for Lear and Adient PLC
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Lear and Adient is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Lear Corp. and Adient PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adient PLC and Lear 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 Lear Corporation are associated (or correlated) with Adient PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adient PLC has no effect on the direction of Lear i.e., Lear and Adient PLC go up and down completely randomly.
Pair Corralation between Lear and Adient PLC
Considering the 90-day investment horizon Lear Corporation is expected to generate 0.65 times more return on investment than Adient PLC. However, Lear Corporation is 1.53 times less risky than Adient PLC. It trades about 0.07 of its potential returns per unit of risk. Adient PLC is currently generating about 0.01 per unit of risk. If you would invest 9,432 in Lear Corporation on November 18, 2024 and sell it today you would earn a total of 205.00 from holding Lear Corporation or generate 2.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lear Corp. vs. Adient PLC
Performance |
| Timeline |
| Lear |
| Adient PLC |
Lear and Adient PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lear and Adient PLC
The main advantage of trading using opposite Lear and Adient PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lear position performs unexpectedly, Adient PLC 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 Adient PLC will offset losses from the drop in Adient PLC's long position.The idea behind Lear Corporation and Adient PLC 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.| Adient PLC vs. Gentex | Adient PLC vs. Autoliv | Adient PLC vs. Fox Factory Holding | Adient PLC vs. Dana Inc |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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