Correlation Between BorgWarner and ECD Automotive

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

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

Diversification Opportunities for BorgWarner and ECD Automotive

-0.16

Correlation Coefficient

BorgWarner  ECD Automotive

Good diversification

The 3 months correlation between BorgWarner and ECD is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding BorgWarner and ECD Automotive Design in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECD Automotive Design 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 ECD Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECD Automotive Design has no effect on the direction of BorgWarner i.e., BorgWarner and ECD Automotive go up and down completely randomly.

Pair Corralation between BorgWarner and ECD Automotive

Considering the 90-day investment horizon BorgWarner is expected to generate 15.04 times less return on investment than ECD Automotive. But when comparing it to its historical volatility, BorgWarner is 11.37 times less risky than ECD Automotive. It trades about 0.04 of its potential returns per unit of risk. ECD Automotive Design is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1.90  in ECD Automotive Design on September 5, 2024 and sell it today you would lose (0.25) from holding ECD Automotive Design or give up 13.16% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	29.69%
Values	Daily Returns

BorgWarner  vs.  ECD Automotive Design

BorgWarner

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BorgWarner are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, BorgWarner is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

ECD Automotive Design

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days ECD Automotive Design has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly conflicting basic indicators, ECD Automotive showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BorgWarner and ECD Automotive

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

The idea behind BorgWarner and ECD Automotive Design 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.