Correlation Between Barloworld and Vanguard Wellesley

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

Diversification Opportunities for Barloworld and Vanguard Wellesley

-0.59

Correlation Coefficient

Barloworld  Vanguard Wellesley

Excellent diversification

The 3 months correlation between Barloworld and Vanguard is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Vanguard Wellesley Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Wellesley Income 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 Vanguard Wellesley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Wellesley Income has no effect on the direction of Barloworld i.e., Barloworld and Vanguard Wellesley go up and down completely randomly.

Pair Corralation between Barloworld and Vanguard Wellesley

Assuming the 90 days horizon Barloworld Ltd ADR is expected to generate 21.53 times more return on investment than Vanguard Wellesley. However, Barloworld is 21.53 times more volatile than Vanguard Wellesley Income. It trades about 0.14 of its potential returns per unit of risk. Vanguard Wellesley Income is currently generating about -0.08 per unit of risk. If you would invest  403.00  in Barloworld Ltd ADR on October 9, 2024 and sell it today you would earn a total of  258.00  from holding Barloworld Ltd ADR or generate 64.02% return on investment over 90 days.

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

Barloworld Ltd ADR  vs.  Vanguard Wellesley Income

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.

Vanguard Wellesley Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Wellesley Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Wellesley is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Barloworld and Vanguard Wellesley

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

The idea behind Barloworld Ltd ADR and Vanguard Wellesley Income 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.