Correlation Between Magellan Aerospace and Cascades

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

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

Diversification Opportunities for Magellan Aerospace and Cascades

0.82

Correlation Coefficient

Magellan Aerospace  Cascades

Very poor diversification

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

Pair Corralation between Magellan Aerospace and Cascades

Assuming the 90 days trading horizon Magellan Aerospace is expected to generate 1.59 times less return on investment than Cascades. In addition to that, Magellan Aerospace is 1.3 times more volatile than Cascades. It trades about 0.16 of its total potential returns per unit of risk. Cascades is currently generating about 0.32 per unit of volatility. If you would invest  917.00  in Cascades on September 3, 2024 and sell it today you would earn a total of  295.00  from holding Cascades or generate 32.17% return on investment over 90 days.

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

Magellan Aerospace  vs.  Cascades

Magellan Aerospace

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Magellan Aerospace are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating essential indicators, Magellan Aerospace displayed solid returns over the last few months and may actually be approaching a breakup point.

Cascades

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cascades are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Cascades displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Magellan Aerospace and Cascades

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

The idea behind Magellan Aerospace and Cascades 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.