Correlation Between Barloworld and Metal Sky

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

Diversification Opportunities for Barloworld and Metal Sky

-0.12

Correlation Coefficient

Barloworld  Metal Sky

Good diversification

The 3 months correlation between Barloworld and Metal is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Metal Sky Star in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metal Sky Star 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 Metal Sky. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metal Sky Star has no effect on the direction of Barloworld i.e., Barloworld and Metal Sky go up and down completely randomly.

Pair Corralation between Barloworld and Metal Sky

Assuming the 90 days horizon Barloworld Ltd ADR is expected to under-perform the Metal Sky. But the pink sheet apears to be less risky and, when comparing its historical volatility, Barloworld Ltd ADR is 4.96 times less risky than Metal Sky. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Metal Sky Star is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  6.00  in Metal Sky Star on September 12, 2024 and sell it today you would earn a total of  0.41  from holding Metal Sky Star or generate 6.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	38.1%
Values	Daily Returns

Barloworld Ltd ADR  vs.  Metal Sky Star

Barloworld ADR

Risk-Adjusted Performance

0 of 100

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 fairly strong basic indicators, Barloworld is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Metal Sky Star

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Metal Sky Star are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Metal Sky reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Barloworld and Metal Sky

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

The idea behind Barloworld Ltd ADR and Metal Sky Star 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.