Correlation Between Air Canada and MGP Ingredients

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

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

Diversification Opportunities for Air Canada and MGP Ingredients

-0.86

Correlation Coefficient

Air Canada  MGP Ingredients

Pay attention - limited upside

The 3 months correlation between Air and MGP is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Air Canada and MGP Ingredients in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MGP Ingredients and Air Canada 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 Air Canada are associated (or correlated) with MGP Ingredients. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MGP Ingredients has no effect on the direction of Air Canada i.e., Air Canada and MGP Ingredients go up and down completely randomly.

Pair Corralation between Air Canada and MGP Ingredients

Assuming the 90 days trading horizon Air Canada is expected to generate 0.87 times more return on investment than MGP Ingredients. However, Air Canada is 1.15 times less risky than MGP Ingredients. It trades about 0.01 of its potential returns per unit of risk. MGP Ingredients is currently generating about -0.06 per unit of risk. If you would invest  1,500  in Air Canada on October 4, 2024 and sell it today you would lose (35.00) from holding Air Canada or give up 2.33% of portfolio value over 90 days.

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

Air Canada  vs.  MGP Ingredients

Air Canada

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air Canada are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Air Canada unveiled solid returns over the last few months and may actually be approaching a breakup point.

MGP Ingredients

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MGP Ingredients has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Air Canada and MGP Ingredients

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

The idea behind Air Canada and MGP Ingredients 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.