Correlation Between Barloworld and Powered Brands

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

Diversification Opportunities for Barloworld and Powered Brands

0.0

Correlation Coefficient

Barloworld  Powered Brands

Pay attention - limited upside

The 3 months correlation between Barloworld and Powered is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Powered Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Powered Brands 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 Powered Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Powered Brands has no effect on the direction of Barloworld i.e., Barloworld and Powered Brands go up and down completely randomly.

Pair Corralation between Barloworld and Powered Brands

Assuming the 90 days horizon Barloworld is expected to generate 13.19 times less return on investment than Powered Brands. But when comparing it to its historical volatility, Barloworld Ltd ADR is 6.14 times less risky than Powered Brands. It trades about 0.05 of its potential returns per unit of risk. Powered Brands is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  19.00  in Powered Brands on January 20, 2024 and sell it today you would lose (19.00) from holding Powered Brands or give up 100.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	24.03%
Values	Daily Returns

Barloworld Ltd ADR  vs.  Powered Brands

Barloworld ADR

Risk-Adjusted Performance

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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 weak 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.

Powered Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Powered Brands has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Powered Brands is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Barloworld and Powered Brands

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

The idea behind Barloworld Ltd ADR and Powered Brands 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.