Correlation Between Honda and BorgWarner

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

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

Diversification Opportunities for Honda and BorgWarner

-0.38

Correlation Coefficient

Honda  BorgWarner

Very good diversification

The 3 months correlation between Honda and BorgWarner is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and BorgWarner in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BorgWarner and Honda 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 Honda Motor Co 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 Honda i.e., Honda and BorgWarner go up and down completely randomly.

Pair Corralation between Honda and BorgWarner

Considering the 90-day investment horizon Honda Motor Co is expected to under-perform the BorgWarner. But the stock apears to be less risky and, when comparing its historical volatility, Honda Motor Co is 1.55 times less risky than BorgWarner. The stock trades about -0.08 of its potential returns per unit of risk. The BorgWarner is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,203  in BorgWarner on March 10, 2024 and sell it today you would earn a total of  258.00  from holding BorgWarner or generate 8.05% return on investment over 90 days.

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

Honda Motor Co  vs.  BorgWarner

Honda Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Honda Motor Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

BorgWarner

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BorgWarner are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, BorgWarner may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Pair Trading with Honda and BorgWarner

The main advantage of trading using opposite Honda and BorgWarner positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honda 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 Honda Motor Co 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.