Correlation Between Gentex and Magna International

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

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

Diversification Opportunities for Gentex and Magna International

0.82

Correlation Coefficient

Gentex  Magna International

Very poor diversification

The 3 months correlation between Gentex and Magna is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Gentex and Magna International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magna International and Gentex 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 Gentex 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 Gentex i.e., Gentex and Magna International go up and down completely randomly.

Pair Corralation between Gentex and Magna International

Assuming the 90 days horizon Gentex is expected to under-perform the Magna International. But the stock apears to be less risky and, when comparing its historical volatility, Gentex is 1.46 times less risky than Magna International. The stock trades about -0.06 of its potential returns per unit of risk. The Magna International is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,863  in Magna International on September 23, 2024 and sell it today you would earn a total of  187.00  from holding Magna International or generate 4.84% return on investment over 90 days.

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

Gentex  vs.  Magna International

Gentex

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gentex are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Gentex is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Magna International

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Magna International are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Magna International may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Gentex and Magna International

The main advantage of trading using opposite Gentex and Magna International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gentex 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 Gentex 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.