Correlation Between Barloworld and Heartland Value

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

Diversification Opportunities for Barloworld and Heartland Value

-0.08

Correlation Coefficient

Barloworld  Heartland Value

Good diversification

The 3 months correlation between Barloworld and Heartland is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Heartland Value Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heartland Value Plus 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 Heartland Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heartland Value Plus has no effect on the direction of Barloworld i.e., Barloworld and Heartland Value go up and down completely randomly.

Pair Corralation between Barloworld and Heartland Value

Assuming the 90 days horizon Barloworld Ltd ADR is expected to generate 5.81 times more return on investment than Heartland Value. However, Barloworld is 5.81 times more volatile than Heartland Value Plus. It trades about 0.14 of its potential returns per unit of risk. Heartland Value Plus is currently generating about -0.03 per unit of risk. If you would invest  403.00  in Barloworld Ltd ADR on October 5, 2024 and sell it today you would earn a total of  258.00  from holding Barloworld Ltd ADR or generate 64.02% 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.  Heartland Value Plus

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.

Heartland Value Plus

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Heartland Value Plus has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Heartland Value 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 Heartland Value

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

The idea behind Barloworld Ltd ADR and Heartland Value Plus 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.