Correlation Between Magna International and Dorman Products
Can any of the company-specific risk be diversified away by investing in both Magna International and Dorman Products 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 Dorman Products into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Magna International and Dorman Products, you can compare the effects of market volatilities on Magna International and Dorman Products 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 Dorman Products. Check out your portfolio center. Please also check ongoing floating volatility patterns of Magna International and Dorman Products.
Diversification Opportunities for Magna International and Dorman Products
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Magna and Dorman is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Magna International and Dorman Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dorman Products 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 Dorman Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dorman Products has no effect on the direction of Magna International i.e., Magna International and Dorman Products go up and down completely randomly.
Pair Corralation between Magna International and Dorman Products
Considering the 90-day investment horizon Magna International is expected to under-perform the Dorman Products. But the stock apears to be less risky and, when comparing its historical volatility, Magna International is 1.76 times less risky than Dorman Products. The stock trades about -0.13 of its potential returns per unit of risk. The Dorman Products is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 8,273 in Dorman Products on January 24, 2024 and sell it today you would earn a total of 606.00 from holding Dorman Products or generate 7.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Magna International vs. Dorman Products
Performance |
| Timeline |
| Magna International |
| Dorman Products |
Magna International and Dorman Products Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Magna International and Dorman Products
The main advantage of trading using opposite Magna International and Dorman Products positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Magna International position performs unexpectedly, Dorman Products 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 Dorman Products will offset losses from the drop in Dorman Products' long position.The idea behind Magna International and Dorman Products 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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