Correlation Between Barloworld and American Century

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

By analyzing existing cross correlation between Barloworld Ltd ADR and American Century One, you can compare the effects of market volatilities on Barloworld and American Century 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 Barloworld with a short position of American Century. Check out your portfolio center. Please also check ongoing floating volatility patterns of Barloworld and American Century.

Diversification Opportunities for Barloworld and American Century

-0.16

Correlation Coefficient

Barloworld  American Century

Good diversification

The 3 months correlation between Barloworld and American is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and American Century One in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Century One and Barloworld 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 Barloworld Ltd ADR are associated (or correlated) with American Century. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Century One has no effect on the direction of Barloworld i.e., Barloworld and American Century go up and down completely randomly.

Pair Corralation between Barloworld and American Century

Assuming the 90 days horizon Barloworld Ltd ADR is expected to generate 18.37 times more return on investment than American Century. However, Barloworld is 18.37 times more volatile than American Century One. It trades about 0.09 of its potential returns per unit of risk. American Century One is currently generating about 0.15 per unit of risk. If you would invest  467.00  in Barloworld Ltd ADR on September 12, 2024 and sell it today you would earn a total of  158.00  from holding Barloworld Ltd ADR or generate 33.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Barloworld Ltd ADR  vs.  American Century One

Barloworld ADR

Risk-Adjusted Performance

7 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Barloworld Ltd ADR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Barloworld showed solid returns over the last few months and may actually be approaching a breakup point.

American Century One

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Century One are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking signals, American Century is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Barloworld and American Century

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

The idea behind Barloworld Ltd ADR and American Century One 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.