Correlation Between Modine Manufacturing and Garrett Motion
Can any of the company-specific risk be diversified away by investing in both Modine Manufacturing and Garrett Motion 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 Modine Manufacturing and Garrett Motion into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Modine Manufacturing and Garrett Motion, you can compare the effects of market volatilities on Modine Manufacturing and Garrett Motion 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 Modine Manufacturing with a short position of Garrett Motion. Check out your portfolio center. Please also check ongoing floating volatility patterns of Modine Manufacturing and Garrett Motion.
Diversification Opportunities for Modine Manufacturing and Garrett Motion
0.19 | Correlation Coefficient |
Average diversification
The 3 months correlation between Modine and Garrett is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Modine Manufacturing and Garrett Motion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Garrett Motion and Modine Manufacturing 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 Modine Manufacturing are associated (or correlated) with Garrett Motion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Garrett Motion has no effect on the direction of Modine Manufacturing i.e., Modine Manufacturing and Garrett Motion go up and down completely randomly.
Pair Corralation between Modine Manufacturing and Garrett Motion
Considering the 90-day investment horizon Modine Manufacturing is expected to generate 1.67 times more return on investment than Garrett Motion. However, Modine Manufacturing is 1.67 times more volatile than Garrett Motion. It trades about 0.13 of its potential returns per unit of risk. Garrett Motion is currently generating about 0.03 per unit of risk. If you would invest 4,920 in Modine Manufacturing on August 26, 2024 and sell it today you would earn a total of 9,402 from holding Modine Manufacturing or generate 191.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Modine Manufacturing vs. Garrett Motion
Performance |
| Timeline |
| Modine Manufacturing |
| Garrett Motion |
Modine Manufacturing and Garrett Motion Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Modine Manufacturing and Garrett Motion
The main advantage of trading using opposite Modine Manufacturing and Garrett Motion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Modine Manufacturing position performs unexpectedly, Garrett Motion 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 Garrett Motion will offset losses from the drop in Garrett Motion's long position.The idea behind Modine Manufacturing and Garrett Motion 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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