Correlation Between Barloworld and Consumer Products

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

Diversification Opportunities for Barloworld and Consumer Products

-0.8

Correlation Coefficient

Barloworld  Consumer Products

Pay attention - limited upside

The 3 months correlation between Barloworld and Consumer is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Consumer Products Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Products 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 Consumer Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Products has no effect on the direction of Barloworld i.e., Barloworld and Consumer Products go up and down completely randomly.

Pair Corralation between Barloworld and Consumer Products

Assuming the 90 days horizon Barloworld Ltd ADR is expected to generate 6.2 times more return on investment than Consumer Products. However, Barloworld is 6.2 times more volatile than Consumer Products Fund. It trades about 0.08 of its potential returns per unit of risk. Consumer Products Fund is currently generating about -0.02 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	Significant
Accuracy	73.03%
Values	Daily Returns

Barloworld Ltd ADR  vs.  Consumer Products Fund

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.

Consumer Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Consumer Products Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic 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 fund investors.

Pair Trading with Barloworld and Consumer Products

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

The idea behind Barloworld Ltd ADR and Consumer Products Fund 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.