Correlation Between Magna International and Northland Power

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

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

Diversification Opportunities for Magna International and Northland Power

-0.48

Correlation Coefficient

Magna International  Northland Power

Very good diversification

The 3 months correlation between Magna and Northland is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Magna International and Northland Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northland Power 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 Northland Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northland Power has no effect on the direction of Magna International i.e., Magna International and Northland Power go up and down completely randomly.

Pair Corralation between Magna International and Northland Power

Assuming the 90 days horizon Magna International is expected to under-perform the Northland Power. In addition to that, Magna International is 1.12 times more volatile than Northland Power. It trades about -0.13 of its total potential returns per unit of risk. Northland Power is currently generating about 0.1 per unit of volatility. If you would invest  1,760  in Northland Power on December 30, 2024 and sell it today you would earn a total of  207.00  from holding Northland Power or generate 11.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Magna International  vs.  Northland Power

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.

Northland Power

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northland Power are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak forward indicators, Northland Power may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Magna International and Northland Power

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

The idea behind Magna International and Northland Power 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.