Correlation Between Titan Machinery and Modine Manufacturing

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

By analyzing existing cross correlation between Titan Machinery and Modine Manufacturing, you can compare the effects of market volatilities on Titan Machinery and Modine Manufacturing 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 Titan Machinery with a short position of Modine Manufacturing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Titan Machinery and Modine Manufacturing.

Diversification Opportunities for Titan Machinery and Modine Manufacturing

0.6

Correlation Coefficient

Titan Machinery  Modine Manufacturing

Poor diversification

The 3 months correlation between Titan and Modine is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Titan Machinery and Modine Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Modine Manufacturing and Titan Machinery 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 Titan Machinery are associated (or correlated) with Modine Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Modine Manufacturing has no effect on the direction of Titan Machinery i.e., Titan Machinery and Modine Manufacturing go up and down completely randomly.

Pair Corralation between Titan Machinery and Modine Manufacturing

Given the investment horizon of 90 days Titan Machinery is expected to under-perform the Modine Manufacturing. But the stock apears to be less risky and, when comparing its historical volatility, Titan Machinery is 1.14 times less risky than Modine Manufacturing. The stock trades about -0.16 of its potential returns per unit of risk. The Modine Manufacturing is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  13,035  in Modine Manufacturing on October 11, 2024 and sell it today you would lose (925.00) from holding Modine Manufacturing or give up 7.1% of portfolio value over 90 days.

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

Titan Machinery  vs.  Modine Manufacturing

Titan Machinery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Titan Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Titan Machinery is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Modine Manufacturing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Modine Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic 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 Titan Machinery and Modine Manufacturing

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

The idea behind Titan Machinery and Modine Manufacturing 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.