Correlation Between Barloworld and IShares Currency

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

Diversification Opportunities for Barloworld and IShares Currency

0.2

Correlation Coefficient

Barloworld  IShares Currency

Modest diversification

The 3 months correlation between Barloworld and IShares is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and iShares Currency Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Currency Hedged 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 IShares Currency. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Currency Hedged has no effect on the direction of Barloworld i.e., Barloworld and IShares Currency go up and down completely randomly.

Pair Corralation between Barloworld and IShares Currency

Assuming the 90 days horizon Barloworld Ltd ADR is expected to generate 8.54 times more return on investment than IShares Currency. However, Barloworld is 8.54 times more volatile than iShares Currency Hedged. It trades about 0.12 of its potential returns per unit of risk. iShares Currency Hedged is currently generating about 0.07 per unit of risk. If you would invest  403.00  in Barloworld Ltd ADR on September 17, 2024 and sell it today you would earn a total of  175.00  from holding Barloworld Ltd ADR or generate 43.42% return on investment over 90 days.

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

Barloworld Ltd ADR  vs.  iShares Currency Hedged

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.

iShares Currency Hedged

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Currency Hedged are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, IShares Currency is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Barloworld and IShares Currency

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

The idea behind Barloworld Ltd ADR and iShares Currency Hedged 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.