Correlation Between Knife River and Barloworld

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

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

Diversification Opportunities for Knife River and Barloworld

0.44

Correlation Coefficient

Knife River  Barloworld

Very weak diversification

The 3 months correlation between Knife and Barloworld is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Knife River and Barloworld Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barloworld ADR and Knife River 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 Knife River 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 Knife River i.e., Knife River and Barloworld go up and down completely randomly.

Pair Corralation between Knife River and Barloworld

Considering the 90-day investment horizon Knife River is expected to under-perform the Barloworld. But the stock apears to be less risky and, when comparing its historical volatility, Knife River is 1.4 times less risky than Barloworld. The stock trades about -0.04 of its potential returns per unit of risk. The Barloworld Ltd ADR is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  577.00  in Barloworld Ltd ADR on December 29, 2024 and sell it today you would lose (52.00) from holding Barloworld Ltd ADR or give up 9.01% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.08%
Values	Daily Returns

Knife River  vs.  Barloworld Ltd ADR

Knife River

Risk-Adjusted Performance

Very Weak

Over the last 90 days Knife River has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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 Knife River and Barloworld

The main advantage of trading using opposite Knife River and Barloworld positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Knife River 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 Knife River 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.