Correlation Between Barloworld and Prime Meridian

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

Diversification Opportunities for Barloworld and Prime Meridian

-0.33

Correlation Coefficient

Barloworld  Prime Meridian

Very good diversification

The 3 months correlation between Barloworld and Prime is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Prime Meridian Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prime Meridian Holding 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 Prime Meridian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prime Meridian Holding has no effect on the direction of Barloworld i.e., Barloworld and Prime Meridian go up and down completely randomly.

Pair Corralation between Barloworld and Prime Meridian

Assuming the 90 days horizon Barloworld Ltd ADR is expected to under-perform the Prime Meridian. In addition to that, Barloworld is 2.2 times more volatile than Prime Meridian Holding. It trades about -0.04 of its total potential returns per unit of risk. Prime Meridian Holding is currently generating about 0.0 per unit of volatility. If you would invest  2,900  in Prime Meridian Holding on December 3, 2024 and sell it today you would lose (50.00) from holding Prime Meridian Holding or give up 1.72% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	75.0%
Values	Daily Returns

Barloworld Ltd ADR  vs.  Prime Meridian Holding

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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Prime Meridian Holding

Risk-Adjusted Performance

Weak

Over the last 90 days Prime Meridian Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, Prime Meridian is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Barloworld and Prime Meridian

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

The idea behind Barloworld Ltd ADR and Prime Meridian Holding 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.