Correlation Between BorgWarner and Asbury Automotive

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

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

Diversification Opportunities for BorgWarner and Asbury Automotive

-0.07

Correlation Coefficient

BorgWarner  Asbury Automotive

Good diversification

The 3 months correlation between BorgWarner and Asbury is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding BorgWarner and Asbury Automotive Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asbury Automotive and BorgWarner 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 BorgWarner are associated (or correlated) with Asbury Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asbury Automotive has no effect on the direction of BorgWarner i.e., BorgWarner and Asbury Automotive go up and down completely randomly.

Pair Corralation between BorgWarner and Asbury Automotive

Considering the 90-day investment horizon BorgWarner is expected to under-perform the Asbury Automotive. But the stock apears to be less risky and, when comparing its historical volatility, BorgWarner is 1.16 times less risky than Asbury Automotive. The stock trades about -0.08 of its potential returns per unit of risk. The Asbury Automotive Group is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  23,024  in Asbury Automotive Group on September 24, 2024 and sell it today you would earn a total of  1,553  from holding Asbury Automotive Group or generate 6.75% return on investment over 90 days.

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

BorgWarner  vs.  Asbury Automotive Group

BorgWarner

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BorgWarner has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Asbury Automotive

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Asbury Automotive Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating fundamental drivers, Asbury Automotive may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BorgWarner and Asbury Automotive

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

The idea behind BorgWarner and Asbury Automotive Group 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.