Correlation Between Magna International and CarsalesCom

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

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

Diversification Opportunities for Magna International and CarsalesCom

0.53

Correlation Coefficient

Magna International  CarsalesCom

Very weak diversification

The 3 months correlation between Magna and CarsalesCom is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Magna International and CarsalesCom Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarsalesCom ADR 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 CarsalesCom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CarsalesCom ADR has no effect on the direction of Magna International i.e., Magna International and CarsalesCom go up and down completely randomly.

Pair Corralation between Magna International and CarsalesCom

Considering the 90-day investment horizon Magna International is expected to under-perform the CarsalesCom. But the stock apears to be less risky and, when comparing its historical volatility, Magna International is 1.22 times less risky than CarsalesCom. The stock trades about -0.04 of its potential returns per unit of risk. The CarsalesCom Ltd ADR is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  4,840  in CarsalesCom Ltd ADR on September 20, 2024 and sell it today you would earn a total of  567.00  from holding CarsalesCom Ltd ADR or generate 11.71% return on investment over 90 days.

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

Magna International  vs.  CarsalesCom Ltd ADR

Magna International

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Magna International are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Magna International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

CarsalesCom ADR

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CarsalesCom Ltd ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, CarsalesCom is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Magna International and CarsalesCom

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

The idea behind Magna International and CarsalesCom Ltd ADR 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.

Check out your portfolio center.

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 Bonds Directory module to find actively traded corporate debentures issued by US companies.