Correlation Between Valeo SE and Barloworld

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

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

Diversification Opportunities for Valeo SE and Barloworld

-0.42

Correlation Coefficient

Valeo SE  Barloworld

Very good diversification

The 3 months correlation between Valeo and Barloworld is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Valeo SE and Barloworld Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barloworld ADR and Valeo SE 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 Valeo SE 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 Valeo SE i.e., Valeo SE and Barloworld go up and down completely randomly.

Pair Corralation between Valeo SE and Barloworld

Assuming the 90 days horizon Valeo SE is expected to generate 1.55 times less return on investment than Barloworld. But when comparing it to its historical volatility, Valeo SE is 2.15 times less risky than Barloworld. It trades about 0.16 of its potential returns per unit of risk. Barloworld Ltd ADR is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  423.00  in Barloworld Ltd ADR on October 1, 2024 and sell it today you would earn a total of  65.00  from holding Barloworld Ltd ADR or generate 15.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Valeo SE  vs.  Barloworld Ltd ADR

Valeo SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valeo SE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Barloworld ADR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Barloworld Ltd ADR are ranked lower than 6 (%) 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 Valeo SE and Barloworld

The main advantage of trading using opposite Valeo SE and Barloworld positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Valeo SE 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 Valeo SE 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.