Correlation Between Magna International and DENSO P

Can any of the company-specific risk be diversified away by investing in both Magna International and DENSO P 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 DENSO P into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Magna International and DENSO P ADR, you can compare the effects of market volatilities on Magna International and DENSO P 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 DENSO P. Check out your portfolio center. Please also check ongoing floating volatility patterns of Magna International and DENSO P.

Diversification Opportunities for Magna International and DENSO P

0.62

Correlation Coefficient

Magna International  DENSO P

Poor diversification

The 3 months correlation between Magna and DENSO is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Magna International and DENSO P ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DENSO P ADR 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 DENSO P. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DENSO P ADR has no effect on the direction of Magna International i.e., Magna International and DENSO P go up and down completely randomly.

Pair Corralation between Magna International and DENSO P

Assuming the 90 days horizon Magna International is expected to generate 1.48 times more return on investment than DENSO P. However, Magna International is 1.48 times more volatile than DENSO P ADR. It trades about 0.09 of its potential returns per unit of risk. DENSO P ADR is currently generating about -0.03 per unit of risk. If you would invest  3,735  in Magna International on August 30, 2024 and sell it today you would earn a total of  455.00  from holding Magna International or generate 12.18% 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.  DENSO P ADR

Magna International

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Magna International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Magna International reported solid returns over the last few months and may actually be approaching a breakup point.

DENSO P ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DENSO P ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, DENSO P is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Magna International and DENSO P

The main advantage of trading using opposite Magna International and DENSO P positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Magna International position performs unexpectedly, DENSO P 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 DENSO P will offset losses from the drop in DENSO P's long position.

The idea behind Magna International and DENSO P ADR 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.