Correlation Between Aptiv PLC and Modine Manufacturing

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

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

Diversification Opportunities for Aptiv PLC and Modine Manufacturing

-0.57

Correlation Coefficient

Aptiv PLC  Modine Manufacturing

Excellent diversification

The 3 months correlation between Aptiv and Modine is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Aptiv PLC and Modine Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Modine Manufacturing and Aptiv PLC 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 Aptiv PLC 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 Aptiv PLC i.e., Aptiv PLC and Modine Manufacturing go up and down completely randomly.

Pair Corralation between Aptiv PLC and Modine Manufacturing

Given the investment horizon of 90 days Aptiv PLC is expected to under-perform the Modine Manufacturing. But the stock apears to be less risky and, when comparing its historical volatility, Aptiv PLC is 1.4 times less risky than Modine Manufacturing. The stock trades about -0.14 of its potential returns per unit of risk. The Modine Manufacturing is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  6,283  in Modine Manufacturing on January 26, 2024 and sell it today you would earn a total of  2,816  from holding Modine Manufacturing or generate 44.82% return on investment over 90 days.

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

Aptiv PLC  vs.  Modine Manufacturing

Aptiv PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aptiv PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in May 2024. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Modine Manufacturing

Risk-Adjusted Performance

17 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Modine Manufacturing are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Modine Manufacturing exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aptiv PLC and Modine Manufacturing

The main advantage of trading using opposite Aptiv PLC and Modine Manufacturing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aptiv PLC 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 Aptiv PLC 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.

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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.