Correlation Between Constellation Brands and BorgWarner

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

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

Diversification Opportunities for Constellation Brands and BorgWarner

0.59

Correlation Coefficient

Constellation Brands  BorgWarner

Very weak diversification

The 3 months correlation between Constellation and BorgWarner is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Brands Class and BorgWarner in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BorgWarner and Constellation Brands 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 Constellation Brands Class 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 Constellation Brands i.e., Constellation Brands and BorgWarner go up and down completely randomly.

Pair Corralation between Constellation Brands and BorgWarner

Considering the 90-day investment horizon Constellation Brands Class is expected to under-perform the BorgWarner. In addition to that, Constellation Brands is 1.6 times more volatile than BorgWarner. It trades about -0.13 of its total potential returns per unit of risk. BorgWarner is currently generating about -0.07 per unit of volatility. If you would invest  3,206  in BorgWarner on December 24, 2024 and sell it today you would lose (258.00) from holding BorgWarner or give up 8.05% of portfolio value over 90 days.

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

Constellation Brands Class  vs.  BorgWarner

Constellation Brands

Risk-Adjusted Performance

Very Weak

Over the last 90 days Constellation Brands Class has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

BorgWarner

Risk-Adjusted Performance

Very Weak

Over the last 90 days BorgWarner has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak 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 Constellation Brands and BorgWarner

The main advantage of trading using opposite Constellation Brands and BorgWarner positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Constellation Brands 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 Constellation Brands Class 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 Commodity Directory module to find actively traded commodities issued by global exchanges.