Correlation Between Barloworld and Small Pany

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

Diversification Opportunities for Barloworld and Small Pany

0.61

Correlation Coefficient

Barloworld  Small Pany

Poor diversification

The 3 months correlation between Barloworld and Small is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Small Pany Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Pany Growth 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 Small Pany. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Pany Growth has no effect on the direction of Barloworld i.e., Barloworld and Small Pany go up and down completely randomly.

Pair Corralation between Barloworld and Small Pany

Assuming the 90 days horizon Barloworld Ltd ADR is expected to generate 2.81 times more return on investment than Small Pany. However, Barloworld is 2.81 times more volatile than Small Pany Growth. It trades about 0.03 of its potential returns per unit of risk. Small Pany Growth is currently generating about 0.07 per unit of risk. If you would invest  480.00  in Barloworld Ltd ADR on October 4, 2024 and sell it today you would earn a total of  8.00  from holding Barloworld Ltd ADR or generate 1.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	71.52%
Values	Daily Returns

Barloworld Ltd ADR  vs.  Small Pany Growth

Barloworld ADR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Barloworld Ltd ADR are ranked lower than 6 (%) 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.

Small Pany Growth

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Small Pany Growth are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Small Pany showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Barloworld and Small Pany

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

The idea behind Barloworld Ltd ADR and Small Pany Growth 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.