Correlation Between Volaris and BorgWarner

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

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

Diversification Opportunities for Volaris and BorgWarner

-0.23

Correlation Coefficient

Volaris  BorgWarner

Very good diversification

The 3 months correlation between Volaris and BorgWarner is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Volaris and BorgWarner in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BorgWarner and Volaris 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 Volaris 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 Volaris i.e., Volaris and BorgWarner go up and down completely randomly.

Pair Corralation between Volaris and BorgWarner

Given the investment horizon of 90 days Volaris is expected to generate 1.28 times more return on investment than BorgWarner. However, Volaris is 1.28 times more volatile than BorgWarner. It trades about 0.18 of its potential returns per unit of risk. BorgWarner is currently generating about -0.15 per unit of risk. If you would invest  783.00  in Volaris on October 25, 2024 and sell it today you would earn a total of  114.00  from holding Volaris or generate 14.56% return on investment over 90 days.

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

Volaris  vs.  BorgWarner

Volaris

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Volaris are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Volaris unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 Volaris and BorgWarner

The main advantage of trading using opposite Volaris and BorgWarner positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Volaris 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 Volaris 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.