Correlation Between Kaiser Aluminum and Magna International

Can any of the company-specific risk be diversified away by investing in both Kaiser Aluminum and Magna International 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 Kaiser Aluminum and Magna International into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Kaiser Aluminum and Magna International

0.85

Correlation Coefficient

Kaiser Aluminum  Magna International

Very poor diversification

The 3 months correlation between Kaiser and Magna is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Kaiser Aluminum and Magna International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magna International and Kaiser Aluminum 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 Kaiser Aluminum are associated (or correlated) with Magna International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magna International has no effect on the direction of Kaiser Aluminum i.e., Kaiser Aluminum and Magna International go up and down completely randomly.

Pair Corralation between Kaiser Aluminum and Magna International

Assuming the 90 days trading horizon Kaiser Aluminum is expected to generate 1.54 times less return on investment than Magna International. In addition to that, Kaiser Aluminum is 1.32 times more volatile than Magna International. It trades about 0.11 of its total potential returns per unit of risk. Magna International is currently generating about 0.23 per unit of volatility. If you would invest  3,812  in Magna International on September 5, 2024 and sell it today you would earn a total of  494.00  from holding Magna International or generate 12.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

Kaiser Aluminum  vs.  Magna International

Kaiser Aluminum

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kaiser Aluminum are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Kaiser Aluminum reported solid returns over the last few months and may actually be approaching a breakup point.

Magna International

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Magna International are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Magna International reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kaiser Aluminum and Magna International

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

The idea behind Kaiser Aluminum and Magna International 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.