Correlation Between Barloworld and Solvay Bank

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

Diversification Opportunities for Barloworld and Solvay Bank

-0.55

Correlation Coefficient

Barloworld  Solvay Bank

Excellent diversification

The 3 months correlation between Barloworld and Solvay is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Solvay Bank Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solvay Bank Corp 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 Solvay Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solvay Bank Corp has no effect on the direction of Barloworld i.e., Barloworld and Solvay Bank go up and down completely randomly.

Pair Corralation between Barloworld and Solvay Bank

Assuming the 90 days horizon Barloworld Ltd ADR is expected to under-perform the Solvay Bank. In addition to that, Barloworld is 1.95 times more volatile than Solvay Bank Corp. It trades about -0.02 of its total potential returns per unit of risk. Solvay Bank Corp is currently generating about 0.13 per unit of volatility. If you would invest  2,562  in Solvay Bank Corp on December 30, 2024 and sell it today you would earn a total of  398.00  from holding Solvay Bank Corp or generate 15.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.16%
Values	Daily Returns

Barloworld Ltd ADR  vs.  Solvay Bank Corp

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 fairly strong basic indicators, Barloworld is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Solvay Bank Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Solvay Bank Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady fundamental drivers, Solvay Bank unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Barloworld and Solvay Bank

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

The idea behind Barloworld Ltd ADR and Solvay Bank Corp 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.