Correlation Between Magna International and Linamar

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

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

Diversification Opportunities for Magna International and Linamar

0.78

Correlation Coefficient

Magna International  Linamar

Poor diversification

The 3 months correlation between Magna and Linamar is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Magna International and Linamar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Linamar 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 Linamar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Linamar has no effect on the direction of Magna International i.e., Magna International and Linamar go up and down completely randomly.

Pair Corralation between Magna International and Linamar

Assuming the 90 days horizon Magna International is expected to under-perform the Linamar. In addition to that, Magna International is 1.16 times more volatile than Linamar. It trades about -0.13 of its total potential returns per unit of risk. Linamar is currently generating about -0.1 per unit of volatility. If you would invest  5,637  in Linamar on December 30, 2024 and sell it today you would lose (687.00) from holding Linamar or give up 12.19% of portfolio value over 90 days.

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

Magna International  vs.  Linamar

Magna International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Magna International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

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.

Pair Trading with Magna International and Linamar

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

The idea behind Magna International and Linamar 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.