Correlation Between Brunswick and Harley Davidson

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

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

Diversification Opportunities for Brunswick and Harley Davidson

0.86

Correlation Coefficient

Brunswick  Harley Davidson

Very poor diversification

The 3 months correlation between Brunswick and Harley is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Brunswick and Harley Davidson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Harley Davidson and Brunswick 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 Brunswick are associated (or correlated) with Harley Davidson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Harley Davidson has no effect on the direction of Brunswick i.e., Brunswick and Harley Davidson go up and down completely randomly.

Pair Corralation between Brunswick and Harley Davidson

Allowing for the 90-day total investment horizon Brunswick is expected to generate 0.99 times more return on investment than Harley Davidson. However, Brunswick is 1.01 times less risky than Harley Davidson. It trades about -0.26 of its potential returns per unit of risk. Harley Davidson is currently generating about -0.33 per unit of risk. If you would invest  9,213  in Brunswick on January 20, 2024 and sell it today you would lose (819.00) from holding Brunswick or give up 8.89% of portfolio value over 90 days.

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

Brunswick  vs.  Harley Davidson

Brunswick

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brunswick has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Brunswick is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Harley Davidson

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Harley Davidson are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Harley Davidson reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Brunswick and Harley Davidson

The main advantage of trading using opposite Brunswick and Harley Davidson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brunswick position performs unexpectedly, Harley Davidson 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 Harley Davidson will offset losses from the drop in Harley Davidson's long position.

The idea behind Brunswick and Harley Davidson 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.