Correlation Between Investment and Barloworld

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

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

Diversification Opportunities for Investment and Barloworld

-0.85

Correlation Coefficient

Investment  Barloworld

Pay attention - limited upside

The 3 months correlation between Investment and Barloworld is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Investment Of America and Barloworld Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barloworld ADR and Investment 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 Investment Of America are associated (or correlated) with Barloworld. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barloworld ADR has no effect on the direction of Investment i.e., Investment and Barloworld go up and down completely randomly.

Pair Corralation between Investment and Barloworld

Assuming the 90 days horizon Investment is expected to generate 10.15 times less return on investment than Barloworld. But when comparing it to its historical volatility, Investment Of America is 11.47 times less risky than Barloworld. It trades about 0.06 of its potential returns per unit of risk. Barloworld Ltd ADR is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  470.00  in Barloworld Ltd ADR on January 25, 2024 and sell it today you would lose (116.00) from holding Barloworld Ltd ADR or give up 24.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	94.94%
Values	Daily Returns

Investment Of America  vs.  Barloworld Ltd ADR

Investment Of America

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Investment Of America are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Investment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Investment and Barloworld

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

The idea behind Investment Of America and Barloworld Ltd ADR 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.