Correlation Between Barloworld and Insurance Portfolio

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

Diversification Opportunities for Barloworld and Insurance Portfolio

-0.7

Correlation Coefficient

Barloworld  Insurance Portfolio

Excellent diversification

The 3 months correlation between Barloworld and INSURANCE is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Insurance Portfolio Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insurance Portfolio 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 Insurance Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insurance Portfolio has no effect on the direction of Barloworld i.e., Barloworld and Insurance Portfolio go up and down completely randomly.

Pair Corralation between Barloworld and Insurance Portfolio

Assuming the 90 days horizon Barloworld Ltd ADR is expected to under-perform the Insurance Portfolio. In addition to that, Barloworld is 4.48 times more volatile than Insurance Portfolio Insurance. It trades about -0.05 of its total potential returns per unit of risk. Insurance Portfolio Insurance is currently generating about -0.12 per unit of volatility. If you would invest  10,224  in Insurance Portfolio Insurance on November 28, 2024 and sell it today you would lose (806.00) from holding Insurance Portfolio Insurance or give up 7.88% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	70.69%
Values	Daily Returns

Barloworld Ltd ADR  vs.  Insurance Portfolio Insurance

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 weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Insurance Portfolio

Risk-Adjusted Performance

Very Weak

Over the last 90 days Insurance Portfolio Insurance has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Barloworld and Insurance Portfolio

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

The idea behind Barloworld Ltd ADR and Insurance Portfolio Insurance 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.