Correlation Between BorgWarner and Volaris

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

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

Diversification Opportunities for BorgWarner and Volaris

-0.23

Correlation Coefficient

BorgWarner  Volaris

Very good diversification

The 3 months correlation between BorgWarner and Volaris is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding BorgWarner and Volaris in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volaris 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 Volaris. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volaris has no effect on the direction of BorgWarner i.e., BorgWarner and Volaris go up and down completely randomly.

Pair Corralation between BorgWarner and Volaris

Considering the 90-day investment horizon BorgWarner is expected to under-perform the Volaris. But the stock apears to be less risky and, when comparing its historical volatility, BorgWarner is 1.22 times less risky than Volaris. The stock trades about -0.04 of its potential returns per unit of risk. The Volaris is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  709.00  in Volaris on October 25, 2024 and sell it today you would earn a total of  181.00  from holding Volaris or generate 25.53% return on investment over 90 days.

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

BorgWarner  vs.  Volaris

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.

Volaris

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Volaris are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Volaris unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BorgWarner and Volaris

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

The idea behind BorgWarner and Volaris 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.