Correlation Between Barloworld and Ab Tax

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

Diversification Opportunities for Barloworld and Ab Tax

0.09

Correlation Coefficient

Barloworld  Ab Tax

Significant diversification

The 3 months correlation between Barloworld and TAFI is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Ab Tax Aware Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Tax Aware 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 Ab Tax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Tax Aware has no effect on the direction of Barloworld i.e., Barloworld and Ab Tax go up and down completely randomly.

Pair Corralation between Barloworld and Ab Tax

Assuming the 90 days horizon Barloworld Ltd ADR is expected to generate 119.23 times more return on investment than Ab Tax. However, Barloworld is 119.23 times more volatile than Ab Tax Aware Short. It trades about 0.2 of its potential returns per unit of risk. Ab Tax Aware Short is currently generating about -0.14 per unit of risk. If you would invest  423.00  in Barloworld Ltd ADR on October 9, 2024 and sell it today you would earn a total of  190.00  from holding Barloworld Ltd ADR or generate 44.92% return on investment over 90 days.

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

Barloworld Ltd ADR  vs.  Ab Tax Aware Short

Barloworld ADR

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Barloworld Ltd ADR are ranked lower than 9 (%) 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.

Ab Tax Aware

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ab Tax Aware Short has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Ab Tax is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Barloworld and Ab Tax

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

The idea behind Barloworld Ltd ADR and Ab Tax Aware Short 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.