Correlation Between Petro Usa and Barloworld

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

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

Diversification Opportunities for Petro Usa and Barloworld

0.0

Correlation Coefficient

Petro Usa  Barloworld

Pay attention - limited upside

The 3 months correlation between Petro and Barloworld is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Petro Usa and Barloworld Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barloworld ADR and Petro Usa 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 Petro Usa 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 Petro Usa i.e., Petro Usa and Barloworld go up and down completely randomly.

Pair Corralation between Petro Usa and Barloworld

Given the investment horizon of 90 days Petro Usa is expected to generate 9.9 times more return on investment than Barloworld. However, Petro Usa is 9.9 times more volatile than Barloworld Ltd ADR. It trades about 0.07 of its potential returns per unit of risk. Barloworld Ltd ADR is currently generating about 0.05 per unit of risk. If you would invest  800.00  in Petro Usa on October 5, 2024 and sell it today you would lose (300.00) from holding Petro Usa or give up 37.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	68.64%
Values	Daily Returns

Petro Usa  vs.  Barloworld Ltd ADR

Petro Usa

Risk-Adjusted Performance

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Very Weak

Over the last 90 days Petro Usa has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, Petro Usa is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

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 Petro Usa and Barloworld

The main advantage of trading using opposite Petro Usa and Barloworld positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Petro Usa 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 Petro Usa 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.

Check out your portfolio center.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.