Correlation Between Magna International and Ford

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

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

Diversification Opportunities for Magna International and Ford

0.76

Correlation Coefficient

Magna International  Ford

Poor diversification

The 3 months correlation between Magna and Ford is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Magna International and Ford Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ford Motor 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 Ford. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ford Motor has no effect on the direction of Magna International i.e., Magna International and Ford go up and down completely randomly.

Pair Corralation between Magna International and Ford

Considering the 90-day investment horizon Magna International is expected to generate 1.11 times more return on investment than Ford. However, Magna International is 1.11 times more volatile than Ford Motor. It trades about 0.09 of its potential returns per unit of risk. Ford Motor is currently generating about 0.03 per unit of risk. If you would invest  4,052  in Magna International on September 1, 2024 and sell it today you would earn a total of  462.00  from holding Magna International or generate 11.4% 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.  Ford Motor

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 somewhat unfluctuating technical and fundamental indicators, Magna International may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Ford Motor

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Ford is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Magna International and Ford

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

The idea behind Magna International and Ford Motor 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.

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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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.