Correlation Between Magna International and Ferrari NV

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

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

Diversification Opportunities for Magna International and Ferrari NV

-0.56

Correlation Coefficient

Magna International  Ferrari NV

Excellent diversification

The 3 months correlation between Magna and Ferrari is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Magna International and Ferrari NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ferrari NV 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 Ferrari NV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ferrari NV has no effect on the direction of Magna International i.e., Magna International and Ferrari NV go up and down completely randomly.

Pair Corralation between Magna International and Ferrari NV

Considering the 90-day investment horizon Magna International is expected to generate 1.37 times more return on investment than Ferrari NV. However, Magna International is 1.37 times more volatile than Ferrari NV. It trades about 0.09 of its potential returns per unit of risk. Ferrari NV is currently generating about -0.09 per unit of risk. If you would invest  4,052  in Magna International on September 3, 2024 and sell it today you would earn a total of  476.00  from holding Magna International or generate 11.75% 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.  Ferrari NV

Magna International

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Magna International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical and fundamental indicators, Magna International may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Ferrari NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ferrari NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Magna International and Ferrari NV

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

The idea behind Magna International and Ferrari NV 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.