Correlation Between Taiga Building and Barloworld

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

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

Diversification Opportunities for Taiga Building and Barloworld

0.02

Correlation Coefficient

Taiga Building  Barloworld

Significant diversification

The 3 months correlation between Taiga and Barloworld is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Taiga Building Products and Barloworld Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barloworld ADR and Taiga Building 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 Taiga Building Products 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 Taiga Building i.e., Taiga Building and Barloworld go up and down completely randomly.

Pair Corralation between Taiga Building and Barloworld

Assuming the 90 days horizon Taiga Building Products is expected to under-perform the Barloworld. But the pink sheet apears to be less risky and, when comparing its historical volatility, Taiga Building Products is 4.82 times less risky than Barloworld. The pink sheet trades about -0.04 of its potential returns per unit of risk. The Barloworld Ltd ADR is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  403.00  in Barloworld Ltd ADR on September 14, 2024 and sell it today you would earn a total of  175.00  from holding Barloworld Ltd ADR or generate 43.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Taiga Building Products  vs.  Barloworld Ltd ADR

Taiga Building Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taiga Building Products has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Taiga Building 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

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Barloworld Ltd ADR are ranked lower than 9 (%) 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 Taiga Building and Barloworld

The main advantage of trading using opposite Taiga Building and Barloworld positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiga Building 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 Taiga Building Products 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.