Correlation Between BorgWarner and Toro

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

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

Diversification Opportunities for BorgWarner and Toro

0.77

Correlation Coefficient

BorgWarner  Toro

Poor diversification

The 3 months correlation between BorgWarner and Toro is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding BorgWarner and Toro Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toro 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 Toro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toro has no effect on the direction of BorgWarner i.e., BorgWarner and Toro go up and down completely randomly.

Pair Corralation between BorgWarner and Toro

Considering the 90-day investment horizon BorgWarner is expected to under-perform the Toro. But the stock apears to be less risky and, when comparing its historical volatility, BorgWarner is 1.02 times less risky than Toro. The stock trades about -0.07 of its potential returns per unit of risk. The Toro Co is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  8,017  in Toro Co on December 29, 2024 and sell it today you would lose (532.00) from holding Toro Co or give up 6.64% of portfolio value over 90 days.

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

BorgWarner  vs.  Toro Co

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.

Toro

Risk-Adjusted Performance

Very Weak

Over the last 90 days Toro Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Toro is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with BorgWarner and Toro

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

The idea behind BorgWarner and Toro Co 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.