Correlation Between Linamar and Ferrari NV

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

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

Diversification Opportunities for Linamar and Ferrari NV

0.27

Correlation Coefficient

Linamar  Ferrari NV

Modest diversification

The 3 months correlation between Linamar and Ferrari is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Linamar and Ferrari NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ferrari NV and Linamar 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 Linamar are associated (or correlated) with Ferrari NV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ferrari NV has no effect on the direction of Linamar i.e., Linamar and Ferrari NV go up and down completely randomly.

Pair Corralation between Linamar and Ferrari NV

Assuming the 90 days horizon Linamar is expected to generate 1.01 times more return on investment than Ferrari NV. However, Linamar is 1.01 times more volatile than Ferrari NV. It trades about -0.03 of its potential returns per unit of risk. Ferrari NV is currently generating about -0.09 per unit of risk. If you would invest  4,579  in Linamar on September 4, 2024 and sell it today you would lose (162.00) from holding Linamar or give up 3.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Linamar  vs.  Ferrari NV

Linamar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Linamar has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Linamar is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Ferrari NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ferrari NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Linamar and Ferrari NV

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

The idea behind Linamar and Ferrari NV 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.