Correlation Between Thor Industries and BorgWarner

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

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

Diversification Opportunities for Thor Industries and BorgWarner

0.56

Correlation Coefficient

Thor Industries  BorgWarner

Very weak diversification

The 3 months correlation between Thor and BorgWarner is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Thor Industries and BorgWarner in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BorgWarner and Thor Industries 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 Thor Industries are associated (or correlated) with BorgWarner. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BorgWarner has no effect on the direction of Thor Industries i.e., Thor Industries and BorgWarner go up and down completely randomly.

Pair Corralation between Thor Industries and BorgWarner

Considering the 90-day investment horizon Thor Industries is expected to under-perform the BorgWarner. But the stock apears to be less risky and, when comparing its historical volatility, Thor Industries is 1.13 times less risky than BorgWarner. The stock trades about -0.13 of its potential returns per unit of risk. The BorgWarner is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  3,439  in BorgWarner on September 16, 2024 and sell it today you would lose (34.00) from holding BorgWarner or give up 0.99% of portfolio value over 90 days.

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

Thor Industries  vs.  BorgWarner

Thor Industries

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Thor Industries are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical indicators, Thor Industries is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

BorgWarner

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with Thor Industries and BorgWarner

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

The idea behind Thor Industries and BorgWarner 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.