Correlation Between MI Homes and BorgWarner

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

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

Diversification Opportunities for MI Homes and BorgWarner

0.75

Correlation Coefficient

MI Homes  BorgWarner

Poor diversification

The 3 months correlation between MHO and BorgWarner is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding MI Homes and BorgWarner in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BorgWarner and MI Homes 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 MI Homes 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 MI Homes i.e., MI Homes and BorgWarner go up and down completely randomly.

Pair Corralation between MI Homes and BorgWarner

Considering the 90-day investment horizon MI Homes is expected to under-perform the BorgWarner. In addition to that, MI Homes is 1.07 times more volatile than BorgWarner. It trades about -0.57 of its total potential returns per unit of risk. BorgWarner is currently generating about -0.22 per unit of volatility. If you would invest  3,507  in BorgWarner on September 26, 2024 and sell it today you would lose (289.00) from holding BorgWarner or give up 8.24% of portfolio value over 90 days.

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

MI Homes  vs.  BorgWarner

MI Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MI Homes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

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 latest fragile 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.

Pair Trading with MI Homes and BorgWarner

The main advantage of trading using opposite MI Homes and BorgWarner positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MI Homes 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 MI Homes 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.