Correlation Between Magna International and New Providence

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

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

Diversification Opportunities for Magna International and New Providence

0.32

Correlation Coefficient

Magna International  New Providence

Weak diversification

The 3 months correlation between Magna and New is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Magna International and New Providence Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Providence Acqui 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 New Providence. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Providence Acqui has no effect on the direction of Magna International i.e., Magna International and New Providence go up and down completely randomly.

Pair Corralation between Magna International and New Providence

Considering the 90-day investment horizon Magna International is expected to generate 0.56 times more return on investment than New Providence. However, Magna International is 1.77 times less risky than New Providence. It trades about 0.03 of its potential returns per unit of risk. New Providence Acquisition is currently generating about 0.0 per unit of risk. If you would invest  4,062  in Magna International on September 27, 2024 and sell it today you would earn a total of  180.00  from holding Magna International or generate 4.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	76.0%
Values	Daily Returns

Magna International  vs.  New Providence Acquisition

Magna International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Magna International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Magna International is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

New Providence Acqui

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days New Providence Acquisition has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, New Providence is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Magna International and New Providence

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

The idea behind Magna International and New Providence Acquisition 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.