Correlation Between Smith Douglas and BorgWarner

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

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

Diversification Opportunities for Smith Douglas and BorgWarner

0.71

Correlation Coefficient

Smith Douglas  BorgWarner

Poor diversification

The 3 months correlation between Smith and BorgWarner is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Smith Douglas Homes and BorgWarner in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BorgWarner and Smith Douglas 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 Smith Douglas 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 Smith Douglas i.e., Smith Douglas and BorgWarner go up and down completely randomly.

Pair Corralation between Smith Douglas and BorgWarner

Given the investment horizon of 90 days Smith Douglas Homes is expected to under-perform the BorgWarner. In addition to that, Smith Douglas is 1.38 times more volatile than BorgWarner. It trades about -0.38 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

Smith Douglas Homes  vs.  BorgWarner

Smith Douglas Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith Douglas Homes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 Smith Douglas and BorgWarner

The main advantage of trading using opposite Smith Douglas and BorgWarner positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smith Douglas 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 Smith Douglas 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.