Correlation Between Geely Automobile and Barloworld

Can any of the company-specific risk be diversified away by investing in both Geely Automobile and Barloworld 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 Geely Automobile and Barloworld into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Geely Automobile Holdings and Barloworld Ltd ADR, you can compare the effects of market volatilities on Geely Automobile and Barloworld 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 Geely Automobile with a short position of Barloworld. Check out your portfolio center. Please also check ongoing floating volatility patterns of Geely Automobile and Barloworld.

Diversification Opportunities for Geely Automobile and Barloworld

0.31

Correlation Coefficient

Geely Automobile  Barloworld

Weak diversification

The 3 months correlation between Geely and Barloworld is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Geely Automobile Holdings and Barloworld Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barloworld ADR and Geely Automobile 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 Geely Automobile Holdings are associated (or correlated) with Barloworld. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barloworld ADR has no effect on the direction of Geely Automobile i.e., Geely Automobile and Barloworld go up and down completely randomly.

Pair Corralation between Geely Automobile and Barloworld

Assuming the 90 days horizon Geely Automobile Holdings is expected to under-perform the Barloworld. But the pink sheet apears to be less risky and, when comparing its historical volatility, Geely Automobile Holdings is 3.73 times less risky than Barloworld. The pink sheet trades about -0.29 of its potential returns per unit of risk. The Barloworld Ltd ADR is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  488.00  in Barloworld Ltd ADR on October 25, 2024 and sell it today you would earn a total of  38.00  from holding Barloworld Ltd ADR or generate 7.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

Geely Automobile Holdings  vs.  Barloworld Ltd ADR

Geely Automobile Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Geely Automobile Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Geely Automobile is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Barloworld ADR

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Barloworld Ltd ADR are ranked lower than 7 (%) 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.

Pair Trading with Geely Automobile and Barloworld

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

The idea behind Geely Automobile Holdings and Barloworld Ltd ADR 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.