Correlation Between NFI and Linamar
Can any of the company-specific risk be diversified away by investing in both NFI and Linamar 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 NFI and Linamar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NFI Group and Linamar, you can compare the effects of market volatilities on NFI and Linamar 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 NFI with a short position of Linamar. Check out your portfolio center. Please also check ongoing floating volatility patterns of NFI and Linamar.
Diversification Opportunities for NFI and Linamar
Very weak diversification
The 3 months correlation between NFI and Linamar is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding NFI Group and Linamar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Linamar and NFI 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 NFI Group are associated (or correlated) with Linamar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Linamar has no effect on the direction of NFI i.e., NFI and Linamar go up and down completely randomly.
Pair Corralation between NFI and Linamar
Assuming the 90 days trading horizon NFI Group is expected to under-perform the Linamar. In addition to that, NFI is 1.18 times more volatile than Linamar. It trades about -0.29 of its total potential returns per unit of risk. Linamar is currently generating about -0.04 per unit of volatility. If you would invest 6,364 in Linamar on August 28, 2024 and sell it today you would lose (179.00) from holding Linamar or give up 2.81% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
NFI Group vs. Linamar
Performance |
| Timeline |
| NFI Group |
| Linamar |
NFI and Linamar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NFI and Linamar
The main advantage of trading using opposite NFI and Linamar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NFI position performs unexpectedly, Linamar 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 Linamar will offset losses from the drop in Linamar's long position.The idea behind NFI Group and Linamar 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.| Linamar vs. Martinrea International | Linamar vs. Magna International | Linamar vs. CCL Industries | Linamar vs. Stella Jones |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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