Correlation Between Barloworld and First Trust

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

Diversification Opportunities for Barloworld and First Trust

-0.63

Correlation Coefficient

Barloworld  First Trust

Excellent diversification

The 3 months correlation between Barloworld and First is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and First Trust TCW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust TCW 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust TCW has no effect on the direction of Barloworld i.e., Barloworld and First Trust go up and down completely randomly.

Pair Corralation between Barloworld and First Trust

Assuming the 90 days horizon Barloworld Ltd ADR is expected to generate 19.23 times more return on investment than First Trust. However, Barloworld is 19.23 times more volatile than First Trust TCW. It trades about 0.07 of its potential returns per unit of risk. First Trust TCW is currently generating about 0.03 per unit of risk. If you would invest  586.00  in Barloworld Ltd ADR on October 22, 2024 and sell it today you would earn a total of  27.00  from holding Barloworld Ltd ADR or generate 4.61% return on investment over 90 days.

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

Barloworld Ltd ADR  vs.  First Trust TCW

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.

First Trust TCW

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust TCW has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, First Trust is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Barloworld and First Trust

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

The idea behind Barloworld Ltd ADR and First Trust TCW 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.