Correlation Between Barloworld and Sempra Energy

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

Diversification Opportunities for Barloworld and Sempra Energy

0.5
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Barloworld and Sempra is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Sempra Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sempra Energy 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 Sempra Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sempra Energy has no effect on the direction of Barloworld i.e., Barloworld and Sempra Energy go up and down completely randomly.

Pair Corralation between Barloworld and Sempra Energy

Assuming the 90 days horizon Barloworld Ltd ADR is expected to under-perform the Sempra Energy. In addition to that, Barloworld is 2.26 times more volatile than Sempra Energy. It trades about -0.21 of its total potential returns per unit of risk. Sempra Energy is currently generating about 0.08 per unit of volatility. If you would invest  7,044  in Sempra Energy on December 29, 2023 and sell it today you would earn a total of  139.00  from holding Sempra Energy or generate 1.97% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy95.65%
ValuesDaily Returns

Barloworld Ltd ADR  vs.  Sempra Energy

 Performance 
       Timeline  
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 latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.
Sempra Energy 

Risk-Adjusted Performance

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Low
 
High
Very Weak
Over the last 90 days Sempra Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Sempra Energy is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Barloworld and Sempra Energy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Barloworld and Sempra Energy

The main advantage of trading using opposite Barloworld and Sempra Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Barloworld position performs unexpectedly, Sempra Energy 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 Sempra Energy will offset losses from the drop in Sempra Energy's long position.
The idea behind Barloworld Ltd ADR and Sempra Energy 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.

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