Can any of the company-specific risk be diversified away by investing in both Barloworld and Stance Equity 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 Stance Equity 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 Stance Equity ESG, you can compare the effects of market volatilities on Barloworld and Stance Equity 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 Stance Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Barloworld and Stance Equity.
Diversification Opportunities for Barloworld and Stance Equity
The 3 months correlation between Barloworld and Stance is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Stance Equity ESG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stance Equity ESG 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 Stance Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stance Equity ESG has no effect on the direction of Barloworld i.e., Barloworld and Stance Equity go up and down completely randomly.
Pair Corralation between Barloworld and Stance Equity
Assuming the 90 days horizon Barloworld Ltd ADR is expected to generate 11.14 times more return on investment than Stance Equity. However, Barloworld is 11.14 times more volatile than Stance Equity ESG. It trades about 0.12 of its potential returns per unit of risk. Stance Equity ESG is currently generating about -0.06 per unit of risk. If you would invest 411.00 in Barloworld Ltd ADR on March 6, 2024 and sell it today you would earn a total of 54.00 from holding Barloworld Ltd ADR or generate 13.14% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Barloworld Ltd ADR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Barloworld showed solid returns over the last few months and may actually be approaching a breakup point.
Over the last 90 days Stance Equity ESG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Stance Equity is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.