Correlation Between Barloworld and Scisparc

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

Diversification Opportunities for Barloworld and Scisparc

0.42

Correlation Coefficient

Barloworld  Scisparc

Very weak diversification

The 3 months correlation between Barloworld and Scisparc is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Scisparc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scisparc 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 Scisparc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scisparc has no effect on the direction of Barloworld i.e., Barloworld and Scisparc go up and down completely randomly.

Pair Corralation between Barloworld and Scisparc

Assuming the 90 days horizon Barloworld is expected to generate 3.77 times less return on investment than Scisparc. But when comparing it to its historical volatility, Barloworld Ltd ADR is 2.49 times less risky than Scisparc. It trades about 0.1 of its potential returns per unit of risk. Scisparc is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  24.00  in Scisparc on October 7, 2024 and sell it today you would earn a total of  29.00  from holding Scisparc or generate 120.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Barloworld Ltd ADR  vs.  Scisparc

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.

Scisparc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Scisparc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Scisparc exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Barloworld and Scisparc

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

The idea behind Barloworld Ltd ADR and Scisparc 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.