Correlation Between Barloworld and Sparta Capital

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

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

Diversification Opportunities for Barloworld and Sparta Capital

0.14

Correlation Coefficient

Barloworld  Sparta Capital

Average diversification

The 3 months correlation between Barloworld and Sparta is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Sparta Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparta Capital and Barloworld 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 Barloworld Ltd ADR are associated (or correlated) with Sparta Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sparta Capital has no effect on the direction of Barloworld i.e., Barloworld and Sparta Capital go up and down completely randomly.

Pair Corralation between Barloworld and Sparta Capital

Assuming the 90 days horizon Barloworld is expected to generate 12.76 times less return on investment than Sparta Capital. But when comparing it to its historical volatility, Barloworld Ltd ADR is 4.33 times less risky than Sparta Capital. It trades about 0.04 of its potential returns per unit of risk. Sparta Capital is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1.21  in Sparta Capital on February 1, 2024 and sell it today you would earn a total of  1.79  from holding Sparta Capital or generate 147.93% return on investment over 90 days.

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

Barloworld Ltd ADR  vs.  Sparta Capital

Barloworld ADR

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Barloworld Ltd ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Barloworld is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Sparta Capital

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sparta Capital are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Sparta Capital reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Barloworld and Sparta Capital

The main advantage of trading using opposite Barloworld and Sparta Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Barloworld position performs unexpectedly, Sparta Capital 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 Sparta Capital will offset losses from the drop in Sparta Capital's long position.

The idea behind Barloworld Ltd ADR and Sparta Capital 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.