Correlation Between Advanced Braking and Magellan Financial

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

By analyzing existing cross correlation between Advanced Braking Technology and Magellan Financial Group, you can compare the effects of market volatilities on Advanced Braking and Magellan Financial 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 Advanced Braking with a short position of Magellan Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advanced Braking and Magellan Financial.

Diversification Opportunities for Advanced Braking and Magellan Financial

0.36

Correlation Coefficient

Advanced Braking  Magellan Financial

Weak diversification

The 3 months correlation between Advanced and Magellan is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Braking Technology and Magellan Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magellan Financial and Advanced Braking 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 Advanced Braking Technology are associated (or correlated) with Magellan Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magellan Financial has no effect on the direction of Advanced Braking i.e., Advanced Braking and Magellan Financial go up and down completely randomly.

Pair Corralation between Advanced Braking and Magellan Financial

Assuming the 90 days trading horizon Advanced Braking Technology is expected to generate 1.19 times more return on investment than Magellan Financial. However, Advanced Braking is 1.19 times more volatile than Magellan Financial Group. It trades about 0.06 of its potential returns per unit of risk. Magellan Financial Group is currently generating about 0.04 per unit of risk. If you would invest  4.00  in Advanced Braking Technology on September 24, 2024 and sell it today you would earn a total of  3.90  from holding Advanced Braking Technology or generate 97.5% return on investment over 90 days.

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

Advanced Braking Technology  vs.  Magellan Financial Group

Advanced Braking Tec

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Braking Technology are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Advanced Braking is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Magellan Financial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Magellan Financial Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Magellan Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Advanced Braking and Magellan Financial

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

The idea behind Advanced Braking Technology and Magellan Financial Group 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.