Correlation Between Azul SA and BorgWarner

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

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

Diversification Opportunities for Azul SA and BorgWarner

0.77

Correlation Coefficient

Azul SA  BorgWarner

Poor diversification

The 3 months correlation between Azul and BorgWarner is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Azul SA and BorgWarner in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BorgWarner and Azul SA 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 Azul SA 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 Azul SA i.e., Azul SA and BorgWarner go up and down completely randomly.

Pair Corralation between Azul SA and BorgWarner

Given the investment horizon of 90 days Azul SA is expected to generate 3.53 times more return on investment than BorgWarner. However, Azul SA is 3.53 times more volatile than BorgWarner. It trades about -0.05 of its potential returns per unit of risk. BorgWarner is currently generating about -0.27 per unit of risk. If you would invest  222.00  in Azul SA on October 11, 2024 and sell it today you would lose (20.00) from holding Azul SA or give up 9.01% of portfolio value over 90 days.

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

Azul SA  vs.  BorgWarner

Azul SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Azul SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

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 weak 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.

Pair Trading with Azul SA and BorgWarner

The main advantage of trading using opposite Azul SA and BorgWarner positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Azul SA 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 Azul SA 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.

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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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.