Correlation Between BorgWarner and MI Homes

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

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

Diversification Opportunities for BorgWarner and MI Homes

0.64

Correlation Coefficient

BorgWarner  MI Homes

Poor diversification

The 3 months correlation between BorgWarner and MHO is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding BorgWarner and MI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MI Homes 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 MI Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MI Homes has no effect on the direction of BorgWarner i.e., BorgWarner and MI Homes go up and down completely randomly.

Pair Corralation between BorgWarner and MI Homes

Considering the 90-day investment horizon BorgWarner is expected to generate 0.77 times more return on investment than MI Homes. However, BorgWarner is 1.3 times less risky than MI Homes. It trades about -0.31 of its potential returns per unit of risk. MI Homes is currently generating about -0.52 per unit of risk. If you would invest  3,405  in BorgWarner on October 14, 2024 and sell it today you would lose (301.00) from holding BorgWarner or give up 8.84% of portfolio value over 90 days.

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

BorgWarner  vs.  MI Homes

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.

MI Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MI Homes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with BorgWarner and MI Homes

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

The idea behind BorgWarner and MI Homes 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.