Correlation Between Barloworld and Absa Group

Can any of the company-specific risk be diversified away by investing in both Barloworld and Absa Group 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 Absa Group 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 Absa Group Ltd, you can compare the effects of market volatilities on Barloworld and Absa Group 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 Absa Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Barloworld and Absa Group.

Diversification Opportunities for Barloworld and Absa Group

0.46

Correlation Coefficient

Barloworld  Absa Group

Very weak diversification

The 3 months correlation between Barloworld and Absa is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Absa Group Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absa Group 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 Absa Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absa Group has no effect on the direction of Barloworld i.e., Barloworld and Absa Group go up and down completely randomly.

Pair Corralation between Barloworld and Absa Group

Assuming the 90 days horizon Barloworld Ltd ADR is expected to generate 1.47 times more return on investment than Absa Group. However, Barloworld is 1.47 times more volatile than Absa Group Ltd. It trades about 0.05 of its potential returns per unit of risk. Absa Group Ltd is currently generating about 0.02 per unit of risk. If you would invest  397.00  in Barloworld Ltd ADR on September 16, 2024 and sell it today you would earn a total of  181.00  from holding Barloworld Ltd ADR or generate 45.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	72.3%
Values	Daily Returns

Barloworld Ltd ADR  vs.  Absa Group Ltd

Barloworld ADR

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Barloworld Ltd ADR are ranked lower than 9 (%) 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.

Absa Group

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Barloworld and Absa Group

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

The idea behind Barloworld Ltd ADR and Absa Group Ltd 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.