Correlation Between Magna International and Stepan
Can any of the company-specific risk be diversified away by investing in both Magna International and Stepan 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 Stepan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Magna International and Stepan Company, you can compare the effects of market volatilities on Magna International and Stepan 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 Stepan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Magna International and Stepan.
Diversification Opportunities for Magna International and Stepan
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Magna and Stepan is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Magna International and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company 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 Stepan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stepan Company has no effect on the direction of Magna International i.e., Magna International and Stepan go up and down completely randomly.
Pair Corralation between Magna International and Stepan
Considering the 90-day investment horizon Magna International is expected to under-perform the Stepan. But the stock apears to be less risky and, when comparing its historical volatility, Magna International is 1.03 times less risky than Stepan. The stock trades about -0.1 of its potential returns per unit of risk. The Stepan Company is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 6,318 in Stepan Company on November 3, 2024 and sell it today you would earn a total of 21.00 from holding Stepan Company or generate 0.33% 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. Stepan Company
Performance |
| Timeline |
| Magna International |
| Stepan Company |
Magna International and Stepan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Magna International and Stepan
The main advantage of trading using opposite Magna International and Stepan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Magna International position performs unexpectedly, Stepan 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 Stepan will offset losses from the drop in Stepan's long position.| 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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