Correlation Between Majic Wheels and Tomra Systems

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

By analyzing existing cross correlation between Majic Wheels Corp and Tomra Systems ASA, you can compare the effects of market volatilities on Majic Wheels and Tomra Systems 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 Majic Wheels with a short position of Tomra Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Majic Wheels and Tomra Systems.

Diversification Opportunities for Majic Wheels and Tomra Systems

0.0

Correlation Coefficient

Majic Wheels  Tomra Systems

Pay attention - limited upside

The 3 months correlation between Majic and Tomra is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Majic Wheels Corp and Tomra Systems ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tomra Systems ASA and Majic Wheels 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 Majic Wheels Corp are associated (or correlated) with Tomra Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tomra Systems ASA has no effect on the direction of Majic Wheels i.e., Majic Wheels and Tomra Systems go up and down completely randomly.

Pair Corralation between Majic Wheels and Tomra Systems

Given the investment horizon of 90 days Majic Wheels Corp is expected to generate 8.38 times more return on investment than Tomra Systems. However, Majic Wheels is 8.38 times more volatile than Tomra Systems ASA. It trades about 0.1 of its potential returns per unit of risk. Tomra Systems ASA is currently generating about 0.03 per unit of risk. If you would invest  0.02  in Majic Wheels Corp on September 14, 2024 and sell it today you would lose (0.01) from holding Majic Wheels Corp or give up 50.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	88.31%
Values	Daily Returns

Majic Wheels Corp  vs.  Tomra Systems ASA

Majic Wheels Corp

Risk-Adjusted Performance

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Very Weak

Over the last 90 days Majic Wheels Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Majic Wheels is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Tomra Systems ASA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tomra Systems ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Majic Wheels and Tomra Systems

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

The idea behind Majic Wheels Corp and Tomra Systems ASA 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.