Correlation Between BorgWarner and Signet Jewelers

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

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

Diversification Opportunities for BorgWarner and Signet Jewelers

0.73

Correlation Coefficient

BorgWarner  Signet Jewelers

Poor diversification

The 3 months correlation between BorgWarner and Signet is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding BorgWarner and Signet Jewelers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Signet Jewelers 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 Signet Jewelers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Signet Jewelers has no effect on the direction of BorgWarner i.e., BorgWarner and Signet Jewelers go up and down completely randomly.

Pair Corralation between BorgWarner and Signet Jewelers

Considering the 90-day investment horizon BorgWarner is expected to generate 5.36 times less return on investment than Signet Jewelers. But when comparing it to its historical volatility, BorgWarner is 1.48 times less risky than Signet Jewelers. It trades about 0.04 of its potential returns per unit of risk. Signet Jewelers is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  8,030  in Signet Jewelers on August 31, 2024 and sell it today you would earn a total of  1,968  from holding Signet Jewelers or generate 24.51% return on investment over 90 days.

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

BorgWarner  vs.  Signet Jewelers

BorgWarner

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BorgWarner are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, BorgWarner is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Signet Jewelers

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Signet Jewelers are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward indicators, Signet Jewelers reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BorgWarner and Signet Jewelers

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

The idea behind BorgWarner and Signet Jewelers 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.

Check out your portfolio center.

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 Bonds Directory module to find actively traded corporate debentures issued by US companies.