Correlation Between Linamar and MDA

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

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

Diversification Opportunities for Linamar and MDA

0.36

Correlation Coefficient

Linamar  MDA

Weak diversification

The 3 months correlation between Linamar and MDA is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Linamar and MDA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MDA 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 MDA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MDA has no effect on the direction of Linamar i.e., Linamar and MDA go up and down completely randomly.

Pair Corralation between Linamar and MDA

Assuming the 90 days trading horizon Linamar is expected to under-perform the MDA. But the stock apears to be less risky and, when comparing its historical volatility, Linamar is 2.24 times less risky than MDA. The stock trades about -0.07 of its potential returns per unit of risk. The MDA is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,934  in MDA on December 28, 2024 and sell it today you would lose (86.00) from holding MDA or give up 2.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Linamar  vs.  MDA

Linamar

Risk-Adjusted Performance

Very Weak

Over the last 90 days Linamar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

MDA

Risk-Adjusted Performance

Very Weak

Over the last 90 days MDA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, MDA is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Linamar and MDA

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

The idea behind Linamar and MDA 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.