Correlation Between Barloworld and Southern BancShares

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

Diversification Opportunities for Barloworld and Southern BancShares

0.74

Correlation Coefficient

Barloworld  Southern BancShares

Poor diversification

The 3 months correlation between Barloworld and Southern is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Southern BancShares NC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern BancShares 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 Southern BancShares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern BancShares has no effect on the direction of Barloworld i.e., Barloworld and Southern BancShares go up and down completely randomly.

Pair Corralation between Barloworld and Southern BancShares

Assuming the 90 days horizon Barloworld is expected to generate 1.3 times less return on investment than Southern BancShares. In addition to that, Barloworld is 2.57 times more volatile than Southern BancShares NC. It trades about 0.04 of its total potential returns per unit of risk. Southern BancShares NC is currently generating about 0.13 per unit of volatility. If you would invest  489,891  in Southern BancShares NC on October 1, 2024 and sell it today you would earn a total of  320,109  from holding Southern BancShares NC or generate 65.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.06%
Values	Daily Returns

Barloworld Ltd ADR  vs.  Southern BancShares NC

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.

Southern BancShares

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Southern BancShares NC are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, Southern BancShares exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Barloworld and Southern BancShares

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

The idea behind Barloworld Ltd ADR and Southern BancShares NC 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.