Correlation Between Goodyear Tire and Borgwarner

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Can any of the company-specific risk be diversified away by investing in both Goodyear Tire 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 Goodyear Tire and Borgwarner into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Goodyear Tire Rubber and Borgwarner, you can compare the effects of market volatilities on Goodyear Tire 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 Goodyear Tire with a short position of Borgwarner. Check out your portfolio center. Please also check ongoing floating volatility patterns of Goodyear Tire and Borgwarner.

Diversification Opportunities for Goodyear Tire and Borgwarner

0.8
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Goodyear and Borgwarner is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Goodyear Tire Rubber and Borgwarner in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Borgwarner and Goodyear Tire 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 Goodyear Tire Rubber 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 Goodyear Tire i.e., Goodyear Tire and Borgwarner go up and down completely randomly.

Pair Corralation between Goodyear Tire and Borgwarner

Allowing for the 90-day total investment horizon Goodyear Tire Rubber is expected to generate 1.65 times more return on investment than Borgwarner. However, Goodyear Tire is 1.65 times more volatile than Borgwarner. It trades about 0.0 of its potential returns per unit of risk. Borgwarner is currently generating about -0.02 per unit of risk. If you would invest  1,870  in Goodyear Tire Rubber on May 20, 2022 and sell it today you would lose (363.00)  from holding Goodyear Tire Rubber or give up 19.41% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Goodyear Tire Rubber  vs.  Borgwarner

 Performance (%) 
       Timeline  
Goodyear Tire Rubber 
Goodyear Performance
11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Goodyear Tire Rubber are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Goodyear Tire unveiled solid returns over the last few months and may actually be approaching a breakup point.

Goodyear Price Channel

Borgwarner 
Borgwarner Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Borgwarner are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Borgwarner is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Borgwarner Price Channel

Goodyear Tire and Borgwarner Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Goodyear Tire and Borgwarner

The main advantage of trading using opposite Goodyear Tire and Borgwarner positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Goodyear Tire 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.

Goodyear Tire Rubber

Pair trading matchups for Goodyear Tire

The idea behind Goodyear Tire Rubber 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.

Borgwarner

Pair trading matchups for Borgwarner

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.

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