Correlation Between Ralph Lauren and BorgWarner

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

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

Diversification Opportunities for Ralph Lauren and BorgWarner

-0.47

Correlation Coefficient

Ralph Lauren  BorgWarner

Very good diversification

The 3 months correlation between Ralph and BorgWarner is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Ralph Lauren Corp and BorgWarner in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BorgWarner and Ralph Lauren 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 Ralph Lauren Corp 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 Ralph Lauren i.e., Ralph Lauren and BorgWarner go up and down completely randomly.

Pair Corralation between Ralph Lauren and BorgWarner

Allowing for the 90-day total investment horizon Ralph Lauren is expected to generate 6.01 times less return on investment than BorgWarner. But when comparing it to its historical volatility, Ralph Lauren Corp is 1.71 times less risky than BorgWarner. It trades about 0.05 of its potential returns per unit of risk. BorgWarner is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  3,450  in BorgWarner on February 11, 2024 and sell it today you would earn a total of  300.00  from holding BorgWarner or generate 8.7% return on investment over 90 days.

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

Ralph Lauren Corp  vs.  BorgWarner

Ralph Lauren Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ralph Lauren Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Ralph Lauren is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

BorgWarner

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BorgWarner are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, BorgWarner sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ralph Lauren and BorgWarner

The main advantage of trading using opposite Ralph Lauren and BorgWarner positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ralph Lauren 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 Ralph Lauren Corp 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.