Correlation Between Barloworld and Butler National

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

Diversification Opportunities for Barloworld and Butler National

-0.13

Correlation Coefficient

Barloworld  Butler National

Good diversification

The 3 months correlation between Barloworld and Butler is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Butler National Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Butler National Corp 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 Butler National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Butler National Corp has no effect on the direction of Barloworld i.e., Barloworld and Butler National go up and down completely randomly.

Pair Corralation between Barloworld and Butler National

Assuming the 90 days horizon Barloworld Ltd ADR is expected to under-perform the Butler National. In addition to that, Barloworld is 1.07 times more volatile than Butler National Corp. It trades about -0.02 of its total potential returns per unit of risk. Butler National Corp is currently generating about 0.2 per unit of volatility. If you would invest  110.00  in Butler National Corp on September 12, 2024 and sell it today you would earn a total of  53.00  from holding Butler National Corp or generate 48.18% return on investment over 90 days.

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

Barloworld Ltd ADR  vs.  Butler National Corp

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.

Butler National Corp

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Butler National Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward-looking signals, Butler National unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Barloworld and Butler National

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

The idea behind Barloworld Ltd ADR and Butler National Corp 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.