Correlation Between Barloworld and Embassy Bancorp

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

Diversification Opportunities for Barloworld and Embassy Bancorp

0.5

Correlation Coefficient

Barloworld  Embassy Bancorp

Very weak diversification

The 3 months correlation between Barloworld and Embassy is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Embassy Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Embassy Bancorp 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 Embassy Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Embassy Bancorp has no effect on the direction of Barloworld i.e., Barloworld and Embassy Bancorp go up and down completely randomly.

Pair Corralation between Barloworld and Embassy Bancorp

Assuming the 90 days horizon Barloworld Ltd ADR is expected to generate 2.24 times more return on investment than Embassy Bancorp. However, Barloworld is 2.24 times more volatile than Embassy Bancorp. It trades about 0.05 of its potential returns per unit of risk. Embassy Bancorp is currently generating about 0.01 per unit of risk. If you would invest  397.00  in Barloworld Ltd ADR on September 17, 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	71.72%
Values	Daily Returns

Barloworld Ltd ADR  vs.  Embassy Bancorp

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.

Embassy Bancorp

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Embassy Bancorp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Embassy Bancorp 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 Embassy Bancorp

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

The idea behind Barloworld Ltd ADR and Embassy Bancorp 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.