Correlation Between BorgWarner and Cars

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

By analyzing existing cross correlation between BorgWarner and Cars Inc, you can compare the effects of market volatilities on BorgWarner and Cars 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 Cars. Check out your portfolio center. Please also check ongoing floating volatility patterns of BorgWarner and Cars.

Diversification Opportunities for BorgWarner and Cars

-0.12

Correlation Coefficient

BorgWarner  Cars

Good diversification

The 3 months correlation between BorgWarner and Cars is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding BorgWarner and Cars Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cars Inc 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 Cars. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cars Inc has no effect on the direction of BorgWarner i.e., BorgWarner and Cars go up and down completely randomly.

Pair Corralation between BorgWarner and Cars

Considering the 90-day investment horizon BorgWarner is expected to under-perform the Cars. But the stock apears to be less risky and, when comparing its historical volatility, BorgWarner is 1.34 times less risky than Cars. The stock trades about -0.08 of its potential returns per unit of risk. The Cars Inc is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,749  in Cars Inc on September 24, 2024 and sell it today you would lose (3.00) from holding Cars Inc or give up 0.17% of portfolio value over 90 days.

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

BorgWarner  vs.  Cars Inc

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.

Cars Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cars Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Cars is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with BorgWarner and Cars

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

The idea behind BorgWarner and Cars Inc 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.