Correlation Between Magna International and Lear

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

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

Diversification Opportunities for Magna International and Lear

-0.82

Correlation Coefficient

Magna International  Lear

Pay attention - limited upside

The 3 months correlation between Magna and Lear is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Magna International and Lear Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lear 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 Lear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lear has no effect on the direction of Magna International i.e., Magna International and Lear go up and down completely randomly.

Pair Corralation between Magna International and Lear

Assuming the 90 days trading horizon Magna International is expected to generate 0.22 times more return on investment than Lear. However, Magna International is 4.46 times less risky than Lear. It trades about 0.23 of its potential returns per unit of risk. Lear Corporation is currently generating about -0.23 per unit of risk. If you would invest  83,831  in Magna International on October 12, 2024 and sell it today you would earn a total of  5,069  from holding Magna International or generate 6.05% return on investment over 90 days.

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

Magna International  vs.  Lear Corp.

Magna International

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Magna International are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Magna International showed solid returns over the last few months and may actually be approaching a breakup point.

Lear

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lear Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Magna International and Lear

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

The idea behind Magna International and Lear Corporation 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.