Correlation Between BorgWarner and CVR Partners

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

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

Diversification Opportunities for BorgWarner and CVR Partners

-0.35

Correlation Coefficient

BorgWarner  CVR Partners

Very good diversification

The 3 months correlation between BorgWarner and CVR is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding BorgWarner and CVR Partners LP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVR Partners LP 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 CVR Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVR Partners LP has no effect on the direction of BorgWarner i.e., BorgWarner and CVR Partners go up and down completely randomly.

Pair Corralation between BorgWarner and CVR Partners

Considering the 90-day investment horizon BorgWarner is expected to under-perform the CVR Partners. But the stock apears to be less risky and, when comparing its historical volatility, BorgWarner is 1.11 times less risky than CVR Partners. The stock trades about -0.02 of its potential returns per unit of risk. The CVR Partners LP is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  6,421  in CVR Partners LP on October 24, 2024 and sell it today you would earn a total of  1,820  from holding CVR Partners LP or generate 28.34% return on investment over 90 days.

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

BorgWarner  vs.  CVR Partners LP

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 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.

CVR Partners LP

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CVR Partners LP are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, CVR Partners displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BorgWarner and CVR Partners

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

The idea behind BorgWarner and CVR Partners LP 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.