Correlation Between Floating Rate and Barloworld

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

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

Diversification Opportunities for Floating Rate and Barloworld

0.77

Correlation Coefficient

Floating Rate  Barloworld

Poor diversification

The 3 months correlation between Floating and Barloworld is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Floating Rate Fund and Barloworld Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barloworld ADR and Floating Rate 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 Floating Rate Fund 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 Floating Rate i.e., Floating Rate and Barloworld go up and down completely randomly.

Pair Corralation between Floating Rate and Barloworld

Assuming the 90 days horizon Floating Rate is expected to generate 11.6 times less return on investment than Barloworld. But when comparing it to its historical volatility, Floating Rate Fund is 45.57 times less risky than Barloworld. It trades about 0.27 of its potential returns per unit of risk. Barloworld Ltd ADR is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  586.00  in Barloworld Ltd ADR on October 23, 2024 and sell it today you would earn a total of  27.00  from holding Barloworld Ltd ADR or generate 4.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Floating Rate Fund  vs.  Barloworld Ltd ADR

Floating Rate

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Floating Rate Fund are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Floating Rate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Floating Rate and Barloworld

The main advantage of trading using opposite Floating Rate and Barloworld positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Floating Rate 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 Floating Rate Fund 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.