Correlation Between Barloworld and Investcorp Europe

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

Diversification Opportunities for Barloworld and Investcorp Europe

-0.39

Correlation Coefficient

Barloworld  Investcorp Europe

Very good diversification

The 3 months correlation between Barloworld and Investcorp is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Investcorp Europe Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investcorp Europe 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 Investcorp Europe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investcorp Europe has no effect on the direction of Barloworld i.e., Barloworld and Investcorp Europe go up and down completely randomly.

Pair Corralation between Barloworld and Investcorp Europe

Assuming the 90 days horizon Barloworld Ltd ADR is expected to under-perform the Investcorp Europe. In addition to that, Barloworld is 1.15 times more volatile than Investcorp Europe Acquisition. It trades about -0.05 of its total potential returns per unit of risk. Investcorp Europe Acquisition is currently generating about -0.02 per unit of volatility. If you would invest  1,155  in Investcorp Europe Acquisition on November 29, 2024 and sell it today you would lose (104.00) from holding Investcorp Europe Acquisition or give up 9.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	70.0%
Values	Daily Returns

Barloworld Ltd ADR  vs.  Investcorp Europe Acquisition

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.

Investcorp Europe

Risk-Adjusted Performance

Very Weak

Over the last 90 days Investcorp Europe Acquisition has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Investcorp Europe is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Barloworld and Investcorp Europe

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

The idea behind Barloworld Ltd ADR and Investcorp Europe Acquisition 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.