Correlation Between Lear and Modine Manufacturing

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

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

Diversification Opportunities for Lear and Modine Manufacturing

0.46

Correlation Coefficient

Lear  Modine Manufacturing

Very weak diversification

The 3 months correlation between Lear and Modine is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Lear Corp. and Modine Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Modine Manufacturing and Lear 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 Lear Corporation are associated (or correlated) with Modine Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Modine Manufacturing has no effect on the direction of Lear i.e., Lear and Modine Manufacturing go up and down completely randomly.

Pair Corralation between Lear and Modine Manufacturing

Considering the 90-day investment horizon Lear Corporation is expected to under-perform the Modine Manufacturing. But the stock apears to be less risky and, when comparing its historical volatility, Lear Corporation is 1.92 times less risky than Modine Manufacturing. The stock trades about -0.1 of its potential returns per unit of risk. The Modine Manufacturing is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  13,338  in Modine Manufacturing on October 7, 2024 and sell it today you would lose (1,094) from holding Modine Manufacturing or give up 8.2% of portfolio value over 90 days.

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

Lear Corp.  vs.  Modine Manufacturing

Lear

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lear Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Modine Manufacturing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Modine Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Modine Manufacturing is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Lear and Modine Manufacturing

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

The idea behind Lear Corporation and Modine Manufacturing 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .