Correlation Between BorgWarner and Harley Davidson

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

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

Diversification Opportunities for BorgWarner and Harley Davidson

0.81

Correlation Coefficient

BorgWarner  Harley Davidson

Very poor diversification

The 3 months correlation between BorgWarner and Harley is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding BorgWarner and Harley Davidson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Harley Davidson 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 Harley Davidson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Harley Davidson has no effect on the direction of BorgWarner i.e., BorgWarner and Harley Davidson go up and down completely randomly.

Pair Corralation between BorgWarner and Harley Davidson

Considering the 90-day investment horizon BorgWarner is expected to generate 0.78 times more return on investment than Harley Davidson. However, BorgWarner is 1.28 times less risky than Harley Davidson. It trades about -0.07 of its potential returns per unit of risk. Harley Davidson is currently generating about -0.1 per unit of risk. If you would invest  3,207  in BorgWarner on December 27, 2024 and sell it today you would lose (257.00) from holding BorgWarner or give up 8.01% of portfolio value over 90 days.

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

BorgWarner  vs.  Harley Davidson

BorgWarner

Risk-Adjusted Performance

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.

Harley Davidson

Risk-Adjusted Performance

Very Weak

Over the last 90 days Harley Davidson has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with BorgWarner and Harley Davidson

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

The idea behind BorgWarner and Harley Davidson 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.