Correlation Between Barloworld and Merck

Can any of the company-specific risk be diversified away by investing in both Barloworld and Merck 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 Merck 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 Merck Company, you can compare the effects of market volatilities on Barloworld and Merck 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 Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Barloworld and Merck.

Diversification Opportunities for Barloworld and Merck

-0.35

Correlation Coefficient

Barloworld  Merck

Very good diversification

The 3 months correlation between Barloworld and Merck is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company 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 Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Barloworld i.e., Barloworld and Merck go up and down completely randomly.

Pair Corralation between Barloworld and Merck

Assuming the 90 days horizon Barloworld Ltd ADR is expected to generate 9.93 times more return on investment than Merck. However, Barloworld is 9.93 times more volatile than Merck Company. It trades about 0.05 of its potential returns per unit of risk. Merck Company is currently generating about 0.07 per unit of risk. If you would invest  502.00  in Barloworld Ltd ADR on January 19, 2024 and sell it today you would lose (148.00) from holding Barloworld Ltd ADR or give up 29.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.55%
Values	Daily Returns

Barloworld Ltd ADR  vs.  Merck Company

Barloworld ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Barloworld Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Merck Company

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Merck is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Barloworld and Merck

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

The idea behind Barloworld Ltd ADR and Merck Company 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..