Correlation Between Magna International and BorgWarner
Can any of the company-specific risk be diversified away by investing in both Magna International 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 Magna International and BorgWarner into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Magna International and BorgWarner, you can compare the effects of market volatilities on Magna International 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 Magna International with a short position of BorgWarner. Check out your portfolio center. Please also check ongoing floating volatility patterns of Magna International and BorgWarner.
Diversification Opportunities for Magna International and BorgWarner
-0.01 | Correlation Coefficient |
Good diversification
The 3 months correlation between Magna and BorgWarner is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Magna International and BorgWarner in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BorgWarner and Magna International 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 Magna International 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 Magna International i.e., Magna International and BorgWarner go up and down completely randomly.
Pair Corralation between Magna International and BorgWarner
Considering the 90-day investment horizon Magna International is expected to under-perform the BorgWarner. But the stock apears to be less risky and, when comparing its historical volatility, Magna International is 1.0 times less risky than BorgWarner. The stock trades about -0.25 of its potential returns per unit of risk. The BorgWarner is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest 3,317 in BorgWarner on January 24, 2024 and sell it today you would lose (8.00) from holding BorgWarner or give up 0.24% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Magna International vs. BorgWarner
Performance |
| Timeline |
| Magna International |
| BorgWarner |
Magna International and BorgWarner Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Magna International and BorgWarner
The main advantage of trading using opposite Magna International and BorgWarner positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Magna International 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 Magna International 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.Check out your portfolio center.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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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