Correlation Between BorgWarner and Pool

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

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

Diversification Opportunities for BorgWarner and Pool

0.5

Correlation Coefficient

BorgWarner  Pool

Very weak diversification

The 3 months correlation between BorgWarner and Pool is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding BorgWarner and Pool Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pool 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 Pool. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pool has no effect on the direction of BorgWarner i.e., BorgWarner and Pool go up and down completely randomly.

Pair Corralation between BorgWarner and Pool

Considering the 90-day investment horizon BorgWarner is expected to generate 16.25 times less return on investment than Pool. But when comparing it to its historical volatility, BorgWarner is 1.01 times less risky than Pool. It trades about 0.0 of its potential returns per unit of risk. Pool Corporation is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  29,338  in Pool Corporation on September 24, 2024 and sell it today you would earn a total of  5,214  from holding Pool Corporation or generate 17.77% return on investment over 90 days.

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

BorgWarner  vs.  Pool Corp.

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 fragile 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.

Pool

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pool Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Pool is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with BorgWarner and Pool

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

The idea behind BorgWarner and Pool Corporation 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.