Correlation Between IShares Canadian and Magellan Aerospace

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

By analyzing existing cross correlation between iShares Canadian HYBrid and Magellan Aerospace, you can compare the effects of market volatilities on IShares Canadian and Magellan Aerospace 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 IShares Canadian with a short position of Magellan Aerospace. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Canadian and Magellan Aerospace.

Diversification Opportunities for IShares Canadian and Magellan Aerospace

0.6

Correlation Coefficient

IShares Canadian  Magellan Aerospace

Poor diversification

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

Pair Corralation between IShares Canadian and Magellan Aerospace

Assuming the 90 days trading horizon iShares Canadian HYBrid is expected to generate 0.31 times more return on investment than Magellan Aerospace. However, iShares Canadian HYBrid is 3.21 times less risky than Magellan Aerospace. It trades about 0.18 of its potential returns per unit of risk. Magellan Aerospace is currently generating about 0.01 per unit of risk. If you would invest  1,967  in iShares Canadian HYBrid on September 13, 2024 and sell it today you would earn a total of  27.00  from holding iShares Canadian HYBrid or generate 1.37% return on investment over 90 days.

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

iShares Canadian HYBrid  vs.  Magellan Aerospace

iShares Canadian HYBrid

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Canadian HYBrid are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, IShares Canadian is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Magellan Aerospace

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Magellan Aerospace are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating essential indicators, Magellan Aerospace displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Canadian and Magellan Aerospace

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

The idea behind iShares Canadian HYBrid and Magellan Aerospace 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.