Correlation Between BorgWarner and Modine Manufacturing

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

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

Diversification Opportunities for BorgWarner and Modine Manufacturing

0.8

Correlation Coefficient

BorgWarner  Modine Manufacturing

Very poor diversification

The 3 months correlation between BorgWarner and Modine is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding BorgWarner and Modine Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Modine Manufacturing 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 Modine Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Modine Manufacturing has no effect on the direction of BorgWarner i.e., BorgWarner and Modine Manufacturing go up and down completely randomly.

Pair Corralation between BorgWarner and Modine Manufacturing

Considering the 90-day investment horizon BorgWarner is expected to generate 0.34 times more return on investment than Modine Manufacturing. However, BorgWarner is 2.91 times less risky than Modine Manufacturing. It trades about -0.07 of its potential returns per unit of risk. Modine Manufacturing is currently generating about -0.09 per unit of risk. If you would invest  3,152  in BorgWarner on December 29, 2024 and sell it today you would lose (269.00) from holding BorgWarner or give up 8.53% of portfolio value over 90 days.

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

BorgWarner  vs.  Modine Manufacturing

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.

Modine Manufacturing

Risk-Adjusted Performance

Very Weak

Over the last 90 days Modine Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with BorgWarner and Modine Manufacturing

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

The idea behind BorgWarner and Modine Manufacturing 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.