Correlation Between Valeo SE and BorgWarner

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

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

Diversification Opportunities for Valeo SE and BorgWarner

0.72

Correlation Coefficient

Valeo SE  BorgWarner

Poor diversification

The 3 months correlation between Valeo and BorgWarner is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Valeo SE and BorgWarner in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BorgWarner and Valeo SE 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 Valeo SE 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 Valeo SE i.e., Valeo SE and BorgWarner go up and down completely randomly.

Pair Corralation between Valeo SE and BorgWarner

Assuming the 90 days horizon Valeo SE is expected to generate 3.09 times more return on investment than BorgWarner. However, Valeo SE is 3.09 times more volatile than BorgWarner. It trades about 0.07 of its potential returns per unit of risk. BorgWarner is currently generating about 0.12 per unit of risk. If you would invest  1,134  in Valeo SE on March 5, 2024 and sell it today you would earn a total of  166.00  from holding Valeo SE or generate 14.64% return on investment over 90 days.

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

Valeo SE  vs.  BorgWarner

Valeo SE

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Valeo SE are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal technical and fundamental indicators, Valeo SE reported solid returns over the last few months and may actually be approaching a breakup point.

BorgWarner

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BorgWarner are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, BorgWarner sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Valeo SE and BorgWarner

The main advantage of trading using opposite Valeo SE and BorgWarner positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Valeo SE 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 Valeo SE 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.