Correlation Between Barloworld and Capital Income

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

Diversification Opportunities for Barloworld and Capital Income

-0.54

Correlation Coefficient

Barloworld  Capital Income

Excellent diversification

The 3 months correlation between Barloworld and Capital is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Capital Income Builder in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Income Builder 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 Capital Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Income Builder has no effect on the direction of Barloworld i.e., Barloworld and Capital Income go up and down completely randomly.

Pair Corralation between Barloworld and Capital Income

Assuming the 90 days horizon Barloworld Ltd ADR is expected to generate 9.66 times more return on investment than Capital Income. However, Barloworld is 9.66 times more volatile than Capital Income Builder. It trades about 0.08 of its potential returns per unit of risk. Capital Income Builder is currently generating about 0.08 per unit of risk. If you would invest  360.00  in Barloworld Ltd ADR on October 5, 2024 and sell it today you would earn a total of  301.00  from holding Barloworld Ltd ADR or generate 83.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	73.03%
Values	Daily Returns

Barloworld Ltd ADR  vs.  Capital Income Builder

Barloworld ADR

Risk-Adjusted Performance

10 of 100

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.

Capital Income Builder

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capital Income Builder has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Capital Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Barloworld and Capital Income

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

The idea behind Barloworld Ltd ADR and Capital Income Builder 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.