Correlation Between American Axle and Magna International

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

By analyzing existing cross correlation between American Axle Manufacturing and Magna International, you can compare the effects of market volatilities on American Axle and Magna International 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 American Axle with a short position of Magna International. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Axle and Magna International.

Diversification Opportunities for American Axle and Magna International

0.82

Correlation Coefficient

American Axle  Magna International

Very poor diversification

The 3 months correlation between American and Magna is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding American Axle Manufacturing and Magna International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magna International and American Axle 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 American Axle Manufacturing are associated (or correlated) with Magna International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magna International has no effect on the direction of American Axle i.e., American Axle and Magna International go up and down completely randomly.

Pair Corralation between American Axle and Magna International

Considering the 90-day investment horizon American Axle Manufacturing is expected to under-perform the Magna International. In addition to that, American Axle is 1.44 times more volatile than Magna International. It trades about -0.13 of its total potential returns per unit of risk. Magna International is currently generating about -0.1 per unit of volatility. If you would invest  4,116  in Magna International on December 28, 2024 and sell it today you would lose (619.00) from holding Magna International or give up 15.04% of portfolio value over 90 days.

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

American Axle Manufacturing  vs.  Magna International

American Axle Manufa

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Axle Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Magna International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Magna International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with American Axle and Magna International

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

The idea behind American Axle Manufacturing and Magna International 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.