Correlation Between Stepan and Magna International
Can any of the company-specific risk be diversified away by investing in both Stepan and Magna International 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 Stepan and Magna International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stepan Company and Magna International, you can compare the effects of market volatilities on Stepan and Magna International 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 Stepan with a short position of Magna International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and Magna International.
Diversification Opportunities for Stepan and Magna International
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Stepan and Magna is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Magna International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magna International and Stepan 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 Stepan Company are associated (or correlated) with Magna International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magna International has no effect on the direction of Stepan i.e., Stepan and Magna International go up and down completely randomly.
Pair Corralation between Stepan and Magna International
Considering the 90-day investment horizon Stepan Company is expected to under-perform the Magna International. In addition to that, Stepan is 1.15 times more volatile than Magna International. It trades about -0.16 of its total potential returns per unit of risk. Magna International is currently generating about -0.17 per unit of volatility. If you would invest 4,205 in Magna International on October 23, 2024 and sell it today you would lose (170.00) from holding Magna International or give up 4.04% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Stepan Company vs. Magna International
Performance |
| Timeline |
| Stepan Company |
| Magna International |
Stepan and Magna International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stepan and Magna International
The main advantage of trading using opposite Stepan and Magna International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan position performs unexpectedly, Magna International 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 Magna International will offset losses from the drop in Magna International's long position.The idea behind Stepan Company and Magna International 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.| 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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