Correlation Between Titan Machinery and Magnachip Semiconductor

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

By analyzing existing cross correlation between Titan Machinery and Magnachip Semiconductor, you can compare the effects of market volatilities on Titan Machinery and Magnachip Semiconductor 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 Titan Machinery with a short position of Magnachip Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Titan Machinery and Magnachip Semiconductor.

Diversification Opportunities for Titan Machinery and Magnachip Semiconductor

0.72

Correlation Coefficient

Titan Machinery  Magnachip Semiconductor

Poor diversification

The 3 months correlation between Titan and Magnachip is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Titan Machinery and Magnachip Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magnachip Semiconductor and Titan Machinery 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 Titan Machinery are associated (or correlated) with Magnachip Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magnachip Semiconductor has no effect on the direction of Titan Machinery i.e., Titan Machinery and Magnachip Semiconductor go up and down completely randomly.

Pair Corralation between Titan Machinery and Magnachip Semiconductor

Assuming the 90 days horizon Titan Machinery is expected to under-perform the Magnachip Semiconductor. But the stock apears to be less risky and, when comparing its historical volatility, Titan Machinery is 1.28 times less risky than Magnachip Semiconductor. The stock trades about -0.08 of its potential returns per unit of risk. The Magnachip Semiconductor is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  382.00  in Magnachip Semiconductor on December 1, 2024 and sell it today you would earn a total of  60.00  from holding Magnachip Semiconductor or generate 15.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Titan Machinery  vs.  Magnachip Semiconductor

Titan Machinery

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Titan Machinery are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Titan Machinery reported solid returns over the last few months and may actually be approaching a breakup point.

Magnachip Semiconductor

Risk-Adjusted Performance

Insignificant

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

Pair Trading with Titan Machinery and Magnachip Semiconductor

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

The idea behind Titan Machinery and Magnachip Semiconductor 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.