Correlation Between Magellan Aerospace and MDA

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

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

Diversification Opportunities for Magellan Aerospace and MDA

0.74

Correlation Coefficient

Magellan Aerospace  MDA

Poor diversification

The 3 months correlation between Magellan and MDA is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Magellan Aerospace and MDA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MDA and Magellan Aerospace 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 Magellan Aerospace are associated (or correlated) with MDA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MDA has no effect on the direction of Magellan Aerospace i.e., Magellan Aerospace and MDA go up and down completely randomly.

Pair Corralation between Magellan Aerospace and MDA

Assuming the 90 days trading horizon Magellan Aerospace is expected to generate 1.71 times less return on investment than MDA. But when comparing it to its historical volatility, Magellan Aerospace is 1.24 times less risky than MDA. It trades about 0.24 of its potential returns per unit of risk. MDA is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  2,455  in MDA on April 20, 2025 and sell it today you would earn a total of  1,887  from holding MDA or generate 76.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Magellan Aerospace  vs.  MDA

Magellan Aerospace

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Magellan Aerospace are ranked lower than 18 (%) 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.

MDA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MDA are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, MDA displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Magellan Aerospace and MDA

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

The idea behind Magellan Aerospace and MDA 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.