Correlation Between Barloworld and Absolute Health

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

Diversification Opportunities for Barloworld and Absolute Health

-0.05

Correlation Coefficient

Barloworld  Absolute Health

Good diversification

The 3 months correlation between Barloworld and Absolute is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Absolute Health and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absolute Health 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 Absolute Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absolute Health has no effect on the direction of Barloworld i.e., Barloworld and Absolute Health go up and down completely randomly.

Pair Corralation between Barloworld and Absolute Health

Assuming the 90 days horizon Barloworld is expected to generate 6.97 times less return on investment than Absolute Health. But when comparing it to its historical volatility, Barloworld Ltd ADR is 6.02 times less risky than Absolute Health. It trades about 0.03 of its potential returns per unit of risk. Absolute Health and is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  0.80  in Absolute Health and on September 3, 2024 and sell it today you would lose (0.80) from holding Absolute Health and or give up 100.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	71.52%
Values	Daily Returns

Barloworld Ltd ADR  vs.  Absolute Health and

Barloworld ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Barloworld Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Barloworld is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Absolute Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Absolute Health and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Barloworld and Absolute Health

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

The idea behind Barloworld Ltd ADR and Absolute Health and 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.