Correlation Between Ford and BorgWarner

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

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

Diversification Opportunities for Ford and BorgWarner

0.07

Correlation Coefficient

Ford  BorgWarner

Significant diversification

The 3 months correlation between Ford and BorgWarner is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and BorgWarner in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BorgWarner and Ford 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 Ford Motor are associated (or correlated) with BorgWarner. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BorgWarner has no effect on the direction of Ford i.e., Ford and BorgWarner go up and down completely randomly.

Pair Corralation between Ford and BorgWarner

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the BorgWarner. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.03 times less risky than BorgWarner. The stock trades about -0.18 of its potential returns per unit of risk. The BorgWarner is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,432  in BorgWarner on September 15, 2024 and sell it today you would earn a total of  73.00  from holding BorgWarner or generate 2.13% return on investment over 90 days.

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

Ford Motor  vs.  BorgWarner

Ford Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Ford is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

BorgWarner

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BorgWarner are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, BorgWarner may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ford and BorgWarner

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

The idea behind Ford Motor and BorgWarner 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.