Correlation Between Magna International and Aecon

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

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

Diversification Opportunities for Magna International and Aecon

0.85

Correlation Coefficient

Magna International  Aecon

Very poor diversification

The 3 months correlation between Magna and Aecon is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Magna International and Aecon Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aecon Group and Magna International 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 Magna International are associated (or correlated) with Aecon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aecon Group has no effect on the direction of Magna International i.e., Magna International and Aecon go up and down completely randomly.

Pair Corralation between Magna International and Aecon

Assuming the 90 days horizon Magna International is expected to generate 3.15 times less return on investment than Aecon. But when comparing it to its historical volatility, Magna International is 1.28 times less risky than Aecon. It trades about 0.12 of its potential returns per unit of risk. Aecon Group is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  1,813  in Aecon Group on August 31, 2024 and sell it today you would earn a total of  1,089  from holding Aecon Group or generate 60.07% return on investment over 90 days.

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

Magna International  vs.  Aecon Group

Magna International

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Magna International are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Magna International displayed solid returns over the last few months and may actually be approaching a breakup point.

Aecon Group

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aecon Group are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Aecon displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Magna International and Aecon

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

The idea behind Magna International and Aecon Group 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.