Correlation Between Harley Davidson and BorgWarner

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

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

Diversification Opportunities for Harley Davidson and BorgWarner

0.62

Correlation Coefficient

Harley Davidson  BorgWarner

Poor diversification

The 3 months correlation between Harley and BorgWarner is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Harley Davidson and BorgWarner in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BorgWarner and Harley Davidson 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 Harley Davidson 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 Harley Davidson i.e., Harley Davidson and BorgWarner go up and down completely randomly.

Pair Corralation between Harley Davidson and BorgWarner

Considering the 90-day investment horizon Harley Davidson is expected to under-perform the BorgWarner. But the stock apears to be less risky and, when comparing its historical volatility, Harley Davidson is 1.19 times less risky than BorgWarner. The stock trades about -0.17 of its potential returns per unit of risk. The BorgWarner is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  3,365  in BorgWarner on September 22, 2024 and sell it today you would lose (177.00) from holding BorgWarner or give up 5.26% of portfolio value over 90 days.

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

Harley Davidson  vs.  BorgWarner

Harley Davidson

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Harley Davidson has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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.

Pair Trading with Harley Davidson and BorgWarner

The main advantage of trading using opposite Harley Davidson and BorgWarner positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Harley Davidson 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 Harley Davidson 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.