Correlation Between Magna International and Canadian Tire
Can any of the company-specific risk be diversified away by investing in both Magna International and Canadian Tire 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 Magna International and Canadian Tire into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Magna International and Canadian Tire, you can compare the effects of market volatilities on Magna International and Canadian Tire 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 Magna International with a short position of Canadian Tire. Check out your portfolio center. Please also check ongoing floating volatility patterns of Magna International and Canadian Tire.
Diversification Opportunities for Magna International and Canadian Tire
-0.37 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Magna and Canadian is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Magna International and Canadian Tire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Tire and Magna International 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 Magna International are associated (or correlated) with Canadian Tire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Tire has no effect on the direction of Magna International i.e., Magna International and Canadian Tire go up and down completely randomly.
Pair Corralation between Magna International and Canadian Tire
Assuming the 90 days horizon Magna International is expected to generate 2.16 times more return on investment than Canadian Tire. However, Magna International is 2.16 times more volatile than Canadian Tire. It trades about 0.09 of its potential returns per unit of risk. Canadian Tire is currently generating about -0.09 per unit of risk. If you would invest 5,922 in Magna International on August 29, 2024 and sell it today you would earn a total of 276.00 from holding Magna International or generate 4.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Magna International vs. Canadian Tire
Performance |
| Timeline |
| Magna International |
| Canadian Tire |
Magna International and Canadian Tire Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Magna International and Canadian Tire
The main advantage of trading using opposite Magna International and Canadian Tire positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Magna International position performs unexpectedly, Canadian Tire 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 Canadian Tire will offset losses from the drop in Canadian Tire's long position.| Magna International vs. Canadian National Railway | Magna International vs. Nutrien | Magna International vs. Restaurant Brands International | Magna International vs. Canadian Pacific Railway |
| Canadian Tire vs. Dollarama | Canadian Tire vs. Loblaw Companies Limited | Canadian Tire vs. Restaurant Brands International | Canadian Tire vs. Canadian National 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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