Correlation Between Barloworld and WBI Power

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

Diversification Opportunities for Barloworld and WBI Power

-0.43

Correlation Coefficient

Barloworld  WBI Power

Very good diversification

The 3 months correlation between Barloworld and WBI is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and WBI Power Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WBI Power Factor 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 WBI Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WBI Power Factor has no effect on the direction of Barloworld i.e., Barloworld and WBI Power go up and down completely randomly.

Pair Corralation between Barloworld and WBI Power

Assuming the 90 days horizon Barloworld Ltd ADR is expected to under-perform the WBI Power. In addition to that, Barloworld is 3.89 times more volatile than WBI Power Factor. It trades about -0.22 of its total potential returns per unit of risk. WBI Power Factor is currently generating about 0.07 per unit of volatility. If you would invest  3,001  in WBI Power Factor on December 3, 2024 and sell it today you would earn a total of  28.00  from holding WBI Power Factor or generate 0.93% 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.  WBI Power Factor

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 weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

WBI Power Factor

Risk-Adjusted Performance

Very Weak

Over the last 90 days WBI Power Factor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward indicators, WBI Power 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 WBI Power

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

The idea behind Barloworld Ltd ADR and WBI Power Factor 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.