Correlation Between First Trust and Barloworld

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

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

Diversification Opportunities for First Trust and Barloworld

0.19

Correlation Coefficient

First Trust  Barloworld

Average diversification

The 3 months correlation between First and Barloworld is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Mid and Barloworld Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barloworld ADR and First Trust 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 First Trust Mid 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 First Trust i.e., First Trust and Barloworld go up and down completely randomly.

Pair Corralation between First Trust and Barloworld

Given the investment horizon of 90 days First Trust is expected to generate 8.53 times less return on investment than Barloworld. But when comparing it to its historical volatility, First Trust Mid is 8.35 times less risky than Barloworld. It trades about 0.12 of its potential returns per unit of risk. Barloworld Ltd ADR is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  411.00  in Barloworld Ltd ADR on March 4, 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.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

First Trust Mid  vs.  Barloworld Ltd ADR

First Trust Mid

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Mid are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, First Trust is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Barloworld ADR

Risk-Adjusted Performance

7 of 100

OK

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.

Pair Trading with First Trust and Barloworld

The main advantage of trading using opposite First Trust and Barloworld positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust 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 First Trust Mid 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.