Correlation Between Barloworld and First Ottawa

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

Diversification Opportunities for Barloworld and First Ottawa

-0.45

Correlation Coefficient

Barloworld  First Ottawa

Very good diversification

The 3 months correlation between Barloworld and First is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and First Ottawa Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Ottawa Bancshares 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 Ottawa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Ottawa Bancshares has no effect on the direction of Barloworld i.e., Barloworld and First Ottawa go up and down completely randomly.

Pair Corralation between Barloworld and First Ottawa

Assuming the 90 days horizon Barloworld Ltd ADR is expected to under-perform the First Ottawa. In addition to that, Barloworld is 2.14 times more volatile than First Ottawa Bancshares. It trades about -0.02 of its total potential returns per unit of risk. First Ottawa Bancshares is currently generating about 0.18 per unit of volatility. If you would invest  13,000  in First Ottawa Bancshares on December 27, 2024 and sell it today you would earn a total of  2,700  from holding First Ottawa Bancshares or generate 20.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	93.33%
Values	Daily Returns

Barloworld Ltd ADR  vs.  First Ottawa Bancshares

Barloworld ADR

Risk-Adjusted Performance

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.

First Ottawa Bancshares

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Ottawa Bancshares are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, First Ottawa sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Barloworld and First Ottawa

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

The idea behind Barloworld Ltd ADR and First Ottawa Bancshares 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.