Correlation Between Barloworld and Eagle Small

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

Diversification Opportunities for Barloworld and Eagle Small

-0.22

Correlation Coefficient

Barloworld  Eagle Small

Very good diversification

The 3 months correlation between Barloworld and Eagle is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Eagle Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle Small Cap 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 Eagle Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eagle Small Cap has no effect on the direction of Barloworld i.e., Barloworld and Eagle Small go up and down completely randomly.

Pair Corralation between Barloworld and Eagle Small

Assuming the 90 days horizon Barloworld Ltd ADR is expected to generate 2.77 times more return on investment than Eagle Small. However, Barloworld is 2.77 times more volatile than Eagle Small Cap. It trades about 0.24 of its potential returns per unit of risk. Eagle Small Cap is currently generating about -0.31 per unit of risk. If you would invest  423.00  in Barloworld Ltd ADR on October 5, 2024 and sell it today you would earn a total of  238.00  from holding Barloworld Ltd ADR or generate 56.26% 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.  Eagle Small Cap

Barloworld ADR

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Barloworld Ltd ADR are ranked lower than 10 (%) 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.

Eagle Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eagle Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Barloworld and Eagle Small

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

The idea behind Barloworld Ltd ADR and Eagle Small Cap 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.