Correlation Between Magna International and Allison Transmission
Can any of the company-specific risk be diversified away by investing in both Magna International and Allison Transmission 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 Allison Transmission into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Magna International and Allison Transmission Holdings, you can compare the effects of market volatilities on Magna International and Allison Transmission 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 Allison Transmission. Check out your portfolio center. Please also check ongoing floating volatility patterns of Magna International and Allison Transmission.
Diversification Opportunities for Magna International and Allison Transmission
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Magna and Allison is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Magna International and Allison Transmission Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allison Transmission 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 Allison Transmission. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allison Transmission has no effect on the direction of Magna International i.e., Magna International and Allison Transmission go up and down completely randomly.
Pair Corralation between Magna International and Allison Transmission
Considering the 90-day investment horizon Magna International is expected to generate 3.15 times less return on investment than Allison Transmission. But when comparing it to its historical volatility, Magna International is 1.08 times less risky than Allison Transmission. It trades about 0.13 of its potential returns per unit of risk. Allison Transmission Holdings is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest 9,788 in Allison Transmission Holdings on August 24, 2024 and sell it today you would earn a total of 2,096 from holding Allison Transmission Holdings or generate 21.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Magna International vs. Allison Transmission Holdings
Performance |
| Timeline |
| Magna International |
| Allison Transmission |
Magna International and Allison Transmission Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Magna International and Allison Transmission
The main advantage of trading using opposite Magna International and Allison Transmission positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Magna International position performs unexpectedly, Allison Transmission 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 Allison Transmission will offset losses from the drop in Allison Transmission's long position.| Magna International vs. Allison Transmission Holdings | Magna International vs. Aptiv PLC | Magna International vs. LKQ Corporation | Magna International vs. Lear Corporation |
| Allison Transmission vs. Gentex | Allison Transmission vs. Adient PLC | Allison Transmission vs. Autoliv | Allison Transmission vs. Fox Factory Holding |
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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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