Correlation Between Global Tech and Barloworld

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

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

Diversification Opportunities for Global Tech and Barloworld

-0.61

Correlation Coefficient

Global Tech  Barloworld

Excellent diversification

The 3 months correlation between Global and Barloworld is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Global Tech Industries and Barloworld Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barloworld ADR and Global Tech 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 Global Tech Industries 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 Global Tech i.e., Global Tech and Barloworld go up and down completely randomly.

Pair Corralation between Global Tech and Barloworld

Given the investment horizon of 90 days Global Tech Industries is expected to generate 12.48 times more return on investment than Barloworld. However, Global Tech is 12.48 times more volatile than Barloworld Ltd ADR. It trades about 0.23 of its potential returns per unit of risk. Barloworld Ltd ADR is currently generating about -0.02 per unit of risk. If you would invest  2.00  in Global Tech Industries on December 30, 2024 and sell it today you would earn a total of  9.00  from holding Global Tech Industries or generate 450.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.16%
Values	Daily Returns

Global Tech Industries  vs.  Barloworld Ltd ADR

Global Tech Industries

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global Tech Industries are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, Global Tech demonstrated solid returns over the last few months and may actually be approaching a breakup point.

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 fairly strong basic indicators, Barloworld is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Global Tech and Barloworld

The main advantage of trading using opposite Global Tech and Barloworld positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Tech 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 Global Tech Industries 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.