Correlation Between BorgWarner and Douglas Dynamics
Can any of the company-specific risk be diversified away by investing in both BorgWarner and Douglas Dynamics 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 BorgWarner and Douglas Dynamics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BorgWarner and Douglas Dynamics, you can compare the effects of market volatilities on BorgWarner and Douglas Dynamics 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 BorgWarner with a short position of Douglas Dynamics. Check out your portfolio center. Please also check ongoing floating volatility patterns of BorgWarner and Douglas Dynamics.
Diversification Opportunities for BorgWarner and Douglas Dynamics
0.07 | Correlation Coefficient |
Significant diversification
The 3 months correlation between BorgWarner and Douglas is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding BorgWarner and Douglas Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Douglas Dynamics and BorgWarner 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 BorgWarner are associated (or correlated) with Douglas Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Douglas Dynamics has no effect on the direction of BorgWarner i.e., BorgWarner and Douglas Dynamics go up and down completely randomly.
Pair Corralation between BorgWarner and Douglas Dynamics
Considering the 90-day investment horizon BorgWarner is expected to under-perform the Douglas Dynamics. But the stock apears to be less risky and, when comparing its historical volatility, BorgWarner is 1.35 times less risky than Douglas Dynamics. The stock trades about -0.01 of its potential returns per unit of risk. The Douglas Dynamics is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 2,461 in Douglas Dynamics on August 26, 2024 and sell it today you would earn a total of 69.00 from holding Douglas Dynamics or generate 2.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BorgWarner vs. Douglas Dynamics
Performance |
| Timeline |
| BorgWarner |
| Douglas Dynamics |
BorgWarner and Douglas Dynamics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BorgWarner and Douglas Dynamics
The main advantage of trading using opposite BorgWarner and Douglas Dynamics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BorgWarner position performs unexpectedly, Douglas Dynamics 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 Douglas Dynamics will offset losses from the drop in Douglas Dynamics' long position.The idea behind BorgWarner and Douglas Dynamics 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.| Douglas Dynamics vs. Monro Muffler Brake | Douglas Dynamics vs. Motorcar Parts of | Douglas Dynamics vs. Standard Motor Products | Douglas Dynamics vs. Stoneridge |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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