Correlation Between Barloworld and Legrand SA

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

Diversification Opportunities for Barloworld and Legrand SA

-0.62
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Barloworld and Legrand is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Legrand SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legrand SA ADR 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 Legrand SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legrand SA ADR has no effect on the direction of Barloworld i.e., Barloworld and Legrand SA go up and down completely randomly.

Pair Corralation between Barloworld and Legrand SA

Assuming the 90 days horizon Barloworld Ltd ADR is expected to generate 13.79 times more return on investment than Legrand SA. However, Barloworld is 13.79 times more volatile than Legrand SA ADR. It trades about 0.24 of its potential returns per unit of risk. Legrand SA ADR is currently generating about -0.38 per unit of risk. If you would invest  423.00  in Barloworld Ltd ADR on October 8, 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 Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Barloworld Ltd ADR  vs.  Legrand SA ADR

 Performance 
       Timeline  
Barloworld ADR 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
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.
Legrand SA ADR 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Legrand SA 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 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 company investors.

Barloworld and Legrand SA Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Barloworld and Legrand SA

The main advantage of trading using opposite Barloworld and Legrand SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Barloworld position performs unexpectedly, Legrand SA 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 Legrand SA will offset losses from the drop in Legrand SA's long position.
The idea behind Barloworld Ltd ADR and Legrand SA ADR 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.

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