Correlation Between Magna International and Bridgestone

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Can any of the company-specific risk be diversified away by investing in both Magna International and Bridgestone 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 Bridgestone into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Magna International and Bridgestone, you can compare the effects of market volatilities on Magna International and Bridgestone 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 Bridgestone. Check out your portfolio center. Please also check ongoing floating volatility patterns of Magna International and Bridgestone.

Diversification Opportunities for Magna International and Bridgestone

-0.55
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Magna and Bridgestone is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Magna International and Bridgestone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridgestone 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 Bridgestone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bridgestone has no effect on the direction of Magna International i.e., Magna International and Bridgestone go up and down completely randomly.

Pair Corralation between Magna International and Bridgestone

Assuming the 90 days horizon Magna International is expected to generate 2.02 times more return on investment than Bridgestone. However, Magna International is 2.02 times more volatile than Bridgestone. It trades about 0.07 of its potential returns per unit of risk. Bridgestone is currently generating about -0.1 per unit of risk. If you would invest  4,107  in Magna International on September 13, 2024 and sell it today you would earn a total of  123.00  from holding Magna International or generate 2.99% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Magna International  vs.  Bridgestone

 Performance 
       Timeline  
Magna International 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Magna International are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Magna International reported solid returns over the last few months and may actually be approaching a breakup point.
Bridgestone 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Bridgestone has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Bridgestone is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Magna International and Bridgestone Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Magna International and Bridgestone

The main advantage of trading using opposite Magna International and Bridgestone positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Magna International position performs unexpectedly, Bridgestone 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 Bridgestone will offset losses from the drop in Bridgestone's long position.
The idea behind Magna International and Bridgestone 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.
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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.

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